Bank shareholders upstage SFC where it counts - over regulation

YOU MAY NOT have noticed it but the other day, the shareholders of Bank of East Asia voted against giving their directors what is called a 'general mandate' to issue new shares at will.

There goes another bit chipped off the old Hong Kong and this time, I am happy to side with corporate governance activist David Webb in applauding. Sometimes the good old ways are just old ways and not so good at all.

What makes this interesting, however, is that shareholder power has done something that the Securities and Futures Commission should have done long before but has never showed much interest in doing. Our power-hungry SFC, which all too frequently shows scant respect for civil liberties or the rule of law, has been upstaged.

Let us backtrack here. The idea many years ago was that a company may sometimes have a ripe acquisition target that will only stay ripe for a short period. If it wants to pluck the fruit, it will have to do it immediately. Unfortunately, it may not always have the resources on hand.

How to get around this obstacle? Simple. Allow the directors to issue new shares in their company without immediate direct approval from shareholders and the resources are immediately in hand.

Of course, even at the time it was recognised that this could not be done without some restrictions. Abuse of shareholder interests is always a danger in such matters.

Thus the rule became that the authority to do it, the general mandate, must be renewed every year at the annual general meeting and must stipulate what proportion of outstanding shares may be issued and at how large a discount from the price on the stock market. In Bank of East Asia's case, this was previously 20 per cent of outstanding capital at a maximum 20 per cent discount.