While the Hong Kong stock exchange is heading in the right direction with its corporate governance reform proposals, and there are surely practical considerations of how much can be done, it is hard to be impressed.
The proposals seem too timid and far behind. Hong Kong is fast becoming one of the most important capital markets, with some of the world's finest firms seeking primary listings here, including Prada, which hopes to follow L'Occitane and Rusal.
As such, it should set its sights higher, to compare favourably with New York and London, rather than merely reaching parity with the mainland, as it seeks to do by requiring one-third of the board to be independent directors.
There are sound economic and pragmatic reasons to do so. A McKinsey survey found that over 70 per cent of investors are willing to pay a premium for demonstrably well-governed companies. The mainland and Singapore compete with Hong Kong to attract the best companies and are ahead in reform. Hong Kong risks losing out.
Independent directors are one of the most important components of an effective board, and several jurisdictions, including the US, Britain and Australia, insist on a majority of independent directors on each board as an integral part of corporate governance reform.
Hong Kong's one-third proposal falls far behind that. Arguments to the effect that we cannot find sufficient independent directors in this city buzzing with highly qualified professionals and highly successful entrepreneurs are disingenuous.
