Independent financial commentator David Webb has proposed the creation of a Hong Kong shareholder activist group with a US$30 million annual budget to be funded by a new stock exchange transaction levy. The group would sue companies which abuse minority investors, lobby on their behalf, and establish a corporate governance ratings system in an attempt to raise the standards of listed companies. Mr Webb called on the Government to back up its stated commitment to improved corporate governance by supporting the proposal. 'If the Government really feels [corporate governance is an important issue here], then they are going to have to get behind it and endorse the proposal,' he told a conference yesterday. Mr Webb, a trenchant critic of Hong Kong's regulatory system, spelled out his vision for the Hongkong Association of Minority Shareholders (HAMS). The association could be a catalyst for shareholder activism in the SAR, helping to raise corporate governance standards, lowering the cost of capital for companies and thereby improving Hong Kong's economic competitiveness, he said. 'Investors will pay a premium for good governance, but they discount prices in emerging markets for the risk of bad governance. This lowers the market ratings of Asian issuers and increases the cost of equity and debt capital, making them less competitive globally,' he said. Improved governance would create a 'virtuous circle' by raising the quality of the market, stimulating growth and attracting issuers and investors. 'Increasing globalisation forces our issuers to compete with Western companies at home and overseas, and if our funding costs are lower through good corporate governance, then we will be more competitive.' Mr Webb said the creation of HAMS would set a 'shining example' to the rest of Asia. 'Nothing on this scale has been attempted so far and it would go a long way to achieving Hong Kong's aspirations to be a world financial market, which is something that the Chief Executive has repeatedly stated [he desires].' He proposed HAMS be funded by a 0.01 per cent transaction levy, which would raise more than HK$300 million based on last year's stock exchange turnover. That should support running costs of up to US$30 million a year. The levy represented a minimal increase in transaction costs and could be absorbed if the Government cut stamp duty by the same amount or more, Mr Webb said. Investors pay stamp duty of 0.1125 per cent, a levy of 0.01 per cent and brokerage commission of at least 0.25 per cent. He said the levy could more than pay for itself by preventing investment losses from corporate governance abuses. HAMS would run a team of lawyers to select and pursue targets for litigation, creating a deterrent to bad governance. With a large membership, the association could create 'pseudo-class actions' by finding multiple plaintiffs among its membership. He expected the association could achieve at least 50,000 members. During the past two years, Mr Webb has become one of Hong Kong's most outspoken commentators on investment and regulatory affairs through his Webb-site.com Internet commentary service. He was speaking at the Symposium on Corporate Governance and Disclosure organised by the Master of Accountancy Programme of Chinese University of Hong Kong. Initial reaction to the HAMS proposal had been positive, he said. He now intended to put the plan to the Financial Services Bureau (FSB) and seek support from the Securities and Futures Commission and professional bodies such as the Hong Kong Society of Accountants and the Law Society. An FSB spokesman said last night: 'The [Standing Commission on Company Law Reform] and its sub-committees are looking into the issue of shareholders, including the protection of minority shareholders. We would welcome Mr Webb's as well as others' proposals which would be considered by the sub-committees.'