Hong Kong-listed companies need greater board independence, AllianzGI says
The boards and audit committees of Hong Kong-listed companies should have greater independence, according to the head of environmental, social and governance research at Allianz Global Investors.
A key reason for the perceived non-independence is that many board directors in Hong Kong have ongoing business relationships with, or are affiliated with, the controlling shareholders, said Eugenia Unanyants-Jackson.
It is also very rare in Hong Kong to find completely independent audit committees with no conflict of interests reporting to the company’s independent directors and ensuring the integrity of financial statements to minority shareholders, she added.
“We want at least a third of the board to be of high quality, experienced, and unquestionably independent directors. The directors who sit on the audit committee also need to have very strong financial experience, especially in audit and accounting,” Unanyants-Jackson said.
Last year AllianzGI, which manages over US$598 billion in assets globally, voted in 7,961 shareholder meetings and on 83,488 proposals from both management and shareholders. The proportion it voted against at the meetings was only 6 per cent in the UK, according to AllianzGI’s latest proxy voting data. The level was sharply higher in Hong Kong, at 28 per cent, and in the US at 35 per cent, reflecting poorer corporate governance standards in those markets.
AllianzGI also voted against 31 per cent of all proposals to appoint a particular director in Hong Kong, the same proportion as in the US, but again well above the UK’s 7 per cent.
“The higher percentage of votes against resolutions in Hong Kong compared to other markets should be a wake-up call to start adapting to globally rising standards,” Unanyants-Jackson said.
Another major governance issue in Hong Kong is that there is a high level of dissolution of minority shareholders resulting from new share capital issuances and poor communication from companies of the justification for such issuances and transactions.
“The global trend is a reduction in capital authorisations that companies ask for and this is due to investor pressure,” Unanyants-Jackson said. “That protects us and the interest of our clients but it also creates discipline within the company when it comes to using proceeds of capital issuances.”
AllianzGI “was compelled” to vote against 35 per cent of all capital authorisations in Hong Kong last year. Because of tightening corporate governance standards, AllianzGI will only support an increase in capital with pre-emption rights of greater than 33 per cent, and an increase in capital without pre-emption rights of greater than 10 per cent if undertaken in exceptional circumstances and justified by the company.
The investment manager launched a new proxy voting tool in recent weeks that is aimed at increasing its transparency to listed companies and its retail and institutional clients, such as insurers, pensions and sovereign wealth funds. AllianzGI’s voting activity on resolutions is now disclosed on a real-time basis globally, alongside explanations of why voting decisions were made against or in abstention.