Unlike Singapore, Hong Kong corporate governance is still stuck in a loop
- Board independence remains questionable, women are in the minority among listed company directors and legal remedies for minority shareholders are still lacking
- Yet, with the likes of Singapore closing the gap, Hong Kong needs to be a better-quality market where investor concerns, rather than vested interests, drive reform
Rules have been tweaked, corporate scandals are brassier and, occasionally, shareholders revolt – but the same shortcomings that vexed the market 20 years ago continue to do so today. Boardrooms stuffed with crony directors. A boys’ club ruling the roost. Legal remedies for minority shareholders? Still next to none.
This was our 10th report and Australia claimed the prize as the market with the best corporate governance in the region. China stayed in 10th place while Indonesia came last. Hong Kong ranked equal second with Singapore.
We base our scores on a wide range of factors, from government policy and enforcement powers to market rules, accounting standards, freedom of the press and shareholder activism. Along the way, we highlight a few of the region’s most brazen corporate miscreants.
When it comes to how listed companies are managed and the rules they play by, Hong Kong is stuck in a loop. Each year, there were a few improvements and some notable lapses but ultimately the city holds itself back.
For decades, policymakers mindful of tycoons at dominant family-controlled firms have taken a conservative, soft-touch approach to corporate governance: keep a check on anything too radical, follow global best practice where we have to. Be cautious.
But, as Hong Kong keeps the bar on corporate governance firmly in middling territory, smaller and less wealthy markets in the region are closing the gap with a mixture of government will, innovation and sheer pluck.
Today, the Securities Investors Association (Singapore) regularly unites minority investors in punchy campaigns against errant firms. It has a mix of wins and losses but can be a force to reckon with and recently acquired government funding.
Meanwhile, the Singapore Exchange is limited in the practical disciplinary action it can take. But it gives companies a public dressing down when they make poor disclosures. It has shown itself to be a worthy interrogator, hurling questions on dicey relationships, cryptic payments and murky finances with the intensity of a Rottweiler. It may not result in disciplinary action but it has the effect of a public flogging.
And during Covid-19, Singapore was swift to amend laws to allow virtual shareholder meetings while Hong Kong meandered. Most AGMs in Singapore last year were by electronic means. Only a handful of listed companies in Hong Kong went virtual.
Class-action lawsuits a plus for investors
Remedies for Hong Kong minority shareholders are now so dire that the stock exchange is planning to require new listings to issue a risk disclaimer, warning investors that they have scant opportunity to pursue legal action in the city.
Corporate Hong Kong could also stop talking about taking “baby steps” on issues such as board diversity. It should be an embarrassment that women directors are so under-represented, not an issue that has to be approached with caution.
There are many other areas where Hong Kong could narrow the gap with Australia. Beyond the blockbuster IPOs and the headline figures, there needs to be a better-quality market where investor concerns, rather than vested interests, drive reform. If Hong Kong wants to be truly world class, it needs to move out of its comfort zone.
Jane Moir is research director, Hong Kong, and Jamie Allen is secretary general at the Asian Corporate Governance Association (ACGA)
