Hong Kong falls short - ANALYSIS - Magazine | Asia Asset Management

Olympic records are a matter of pride. Some records in corporate governance are of more questionable value. The current record holder among independen...

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Malaysia ,Australia ,Japan ,India ,Hong Kong ,United Kingdom ,Singapore ,China ,Asia Pacific ,Bloomberg ,Hong Kong Listed ,Hong Kong Exchanges ,Independent Directors ,New York Listed ,Corporate Governance Code ,Only Japan ,Olympic Records Area Matter Of Pride Some In Corporate Governance Are More Questionable Value The Current Record Holder Among Independent Non Executive Directors Ineds On Boards Hong Kong Listed Companies Has Been Same Board For 47 Years He Beena Director Since 1974 And An Ined 2000 This Person Is 92 Old ,Hich Means He Has Been Serving On The Board For More Than Half His Life So Can Be Considered Truly Independent Long Tenures Tend To Make Ineds Overly Comfortable In Their Roles ,Ozy With Management ,Nd Unwilling To Rock The Boat Data From Hong Kong Exchanges And Clearing Hkex Shows That There Are 214 Ineds With Tenures Of 20 Years Or More Among 8 ,552 Such Positions In Companies Listed On The Bourse Is Just One Of Several Issues That Cast Doubt Level Independence Individuals Bring To Boards Hong Kong ,Nd The State Of Corporate Governance In City Cfa Institute Amp Rsquos Report ,Ndependent Directors In Asia Pacific ,Ublished In June ,Lso Highlights The Relative Paucity Of Ineds On Boards Hong Kong Listed Companies Compared To Other Markets In Region ,He Numerous Cases Of Individuals Serving On Multiple Boards ,He Low Number Of Women Directors ,Nd The Influence Of Controlling Shareholders In Appointing Ineds Amp Nbsp Although All Six Markets Analysed Study Ndash Australia ,Nd Singapore Amp Ndash Have Issues ,Ong Kong Does Poorly By Comparison On Several Measures Amp Nbsp Individuals Appointed To Boards As Ineds Are Expected Exercisea High Level Of Independence In Thinking And Not Be Biased Or Controlled Company Executives Major Shareholders Their Duty Is Challenge Counterbalance The Management ,Hereby Mitigating The Agency Problem Of Corporations This Is Critical When Assessing Related Party Transactions Independent Boards Make Better Decisions ,Ore Reliably Hold Management To Account ,Nd Better Safeguard The Interest Of Shareholders Lack Ineds On Company Boards Can Lead To Them Being Controlled By Insiders ,A Disregard For The Needs Of Shareholders ,Iased Decision Making ,End ,N Extreme Cases ,Orporate Misconduct Amp Nbsp Appointing Majority Independent Boards Isa Common Practice In Developed Markets Such As Australia ,He Uk And The Us It Is Also One Of Best Practices Corporate Governance That Cfa Institute Promotes As Part Its Mission To Deliver Better Outcomes Investors By Fostering More Efficient Transparent Capital Markets Amp Nbsp Fewer Independents ,Ver Boarding The Hkex Listing Rules State That Each Listed Company Should Appoint At Least Three Ineds ,Nd That These Directors Should Constitute No Less Than One Third Of The Board In Practice ,Fa Institute Amp Rsquos Analysis Based On Data From Factset Found That Ineds Fill 38 Of Board Seats Among Hong Kong Listed Companies Witha Market Capitalisation Us 500 Million Or More This Compares Unfavourably To Almost All Other Markets Analysed In The Study ,Ith The Share Ranging From 47 In India To 58 Singapore Amp Nbsp Number Of Ineds On Board Alone Doesn Rsquot Tell Whole Story About Their Ability Make Unbiased Decisions ,Challenge Management ,Nd Prioritise Shareholders Amp Rsquo Interest Their Long Tenures Lead To Less Independence Cfa Institute Is Of The View That Ineds Should Serve In Such Roles No Longer Than Ten Years ,S Is The Case In India Hkex Appears To Share That View But Stops Short Of Forcing Companies Limit Tenures Their Ineds ,Equiring Only That Those Who Serve Longer Than Nine Years Be Approved By Independent Shareholders And Subject To Additional Disclosures Amp Nbsp Another Issue Is Of Director Over Boarding ,Here Individuals Serving On Multiple Boards At The Same Time Although Many Ineds Are Talented And Hard Working ,Here Are Only 24 Hours Ina Day It Amp Rsquos Doubtful Whether Today Record Holder ,Erving On 17 Boards Amp Ndash Including In 16 Ined Roles Can Devote Enough Time And Attention To Each Company ,N Addition To His Other Duties Amp Nbsp Over Boarding Is More Common In Hong Kong Than Many Developed Markets Analysis By Bloomberg Found That 2019 ,Here Were 113 Hkex Listed Companies Witha Director Serving On More Than Six Boards Versus 39 At New York And 14 Those In Singapore But There Was Some Progress Since The Number Of Individuals With Directorships Had Declined Bya Third 2017 ,Fter The Bourse Imposed Additional Justification Requirement When Appointinga Person For Their Seventh Such Role Amp Nbsp Gender Diversity In Its Most Recent Proposed Update To Corporate Governance Code ,Kex Madea Push For Gender Diversity ,Pstating ,Tin Effect ,Hat Boards With No Women Directors Will Longer Be Acceptable The Move Is Welcome ,S It Recognises That More Diversity Amp Ndash Not Only Of Gender ,Ut Also Of Age ,Cultural Background ,Education ,Nd Professional Experience Amp Ndash Makes Fora Better Board Nbsp On Gender Diversity ,Ong Kong Again Compares Unfavourably To Most Other Markets In The Cfa Institute Analysis ,Ith Only 13 Of Women Directors On Average In The Factset Sample Companies Compared With 30 Australia ,4 In Malaysia ,F7 In India ,Nd 15 In Singapore Only Japan ,Here Traditional Attitudes To Doing Business Still Dominate And Women Havea Tough Time Advancing Up The Corporate Ladder ,Ared Worse Than Hong Kong ,Ith Just 6 Of Women Directors Board Independence Should Not Only Be Evaluated On The Number Ineds Or Their Diversity ,Ut Also On The Quality And Skills Of Individuals Appointed To These Roles Amp Nbsp Many Hong Kong Listed Companies Are Controlled By Founders ,Their Families ,R China Based State Owned Enterprises Such Entities Wield Power To Nominate And Appoint Directors ,Ncluding Ineds ,Hom They Like Pliant Ones Who Are Not Likely To Cause Trouble And Will Support The Management Unconditionally It Amp Rsquos Difficult Ascertain How Often This Happens ,Ut It Amp Rsquos Common Knowledge Among Governance Professionals That The Issue Is More Prevalent In Hong Kong Than Markets Where Companies Are Broadly Held And Institutional Shareholders Playa Major Role Nbsp Room For Improvement Cfa Institute Analysis Found Of ,N Particular Around The Functioning And Independence Of Boards ,As Much Room For Improvement Ideally ,N Addition To Limiting The Tenure Of Ineds ,He Roles Of The Chair Board And Chief Executive Officer Should Be Separated ,Nd The Chair Should Be An Independent Director In Hong Kong ,He Ceo Was The Chair In 29 Of Companies Included Factset Sample ,Ore Than In All Other Markets Except Japan ,Here It Isa Standard Business Practice Amp Nbsp The Notion Ofa Company Rsquos Board Chaired By An Ined May Be Hard To Swallow For Region Numerous Founder ,Family ,R Promoter Dominated Companies Malaysia Showsa Way Forward ,Itha Requirement That If The Chair Is Not Independent ,A Majority Of The Board Should Be Appointinga Lead Independent Director To Serve Asa Voice Minority Shareholders Is Also Recommended In Such Situations Good Corporate Governance ,Nd In Particular The Quality Of Company Boards ,Omes To The Fore In Times Of Crisis ,Uch As During An Economic Downturn Ora Pandemic ,Hen Close Attention Needs To Be Paid The Business Environment And Difficult Decisions Often Need Made Experienced ,Ndependent Minded ,Nd Diverse Boards Playa Crucial Role In Steering Companies And Ensuring Best Outcomes For Shareholders Amp Nbsp Piotr Zembrowski Is Manager ,Dvocacy Research Amp Content ,T Cfa Institute ,