THE benefits of corporate governance outweigh the potential costs to listed companies of its implementation, Laura Cha, the executive director of the Securities and Futures Commission, said yesterday. Mrs Cha, who was speaking at the Rotary Club of Hong Kong Northeast, said the unique structure of territory companies means that regulators will have to develop a different approach than those used in leading Western economies. In Britain and the United States, institutional and public shareholdings ensure that single shareholders do not control the company. She said: 'The market of Hong Kong, however, is different. In addition to having most of the listed companies being controlled by one single shareholder, institutional investors do not play the same role in Hong Kong as in the other major markets. 'I would argue that it is exactly because the market structure in Hong Kong is such that the management, board of directors and controlling shareholders of most listed companies are one and the same, corporate governance becomes an even more important issue in terms of the standard of corporate behaviour in the market place.' Corporate governance refers to the way listed companies are directed and controlled. ' 'Governance' refers to the behaviour of the board of directors of a company, while 'management' refers to the way the company is operated. However, in the context of Hong Kong, where a large number of listed companies are controlled by one single shareholder, it is often the same thing. It was the collapse of high profile Western companies, such as Polly Peck and those of disgraced publishing tycoon Robert Maxwell, that developed momentum for tighter controls. 'Proper corporate governance not only raises a company's public profile, it will also enhance shareholders' value and project a responsible image of the company in the market. A market where listed companies behave properly is an indication of the maturity and sophistication of the market, which in turn will attract more international investors and participants to the market.' The SFC has introduced several measures, including the requirement for independent shareholder approval for a range of transactions - such as connected transactions and large rights issues - where there could be concerns about the accountability of management to minority shareholders. In addition, the stock exchange has introduced a requirement for all listed companies to have a minimum of two independent non-executive directors in 12 months' time. The SFC is backing a proposal to enact legislation giving auditors statutory protection if they report suspected fraud by listed companies to the regulators. In response to a question from Moses Mo-Chi Cheng, a politician and lawyer, about the cost to listed companies of introducing the changes, she said: 'The cost element is always a consideration. But the costs where listed companies are raising capital from the public should not be an important element.'
