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The Development of Corporate Governance
in Hong Kong
Paul M Y Chow
Chief Executive
Hong Kong Exchanges and Clearing Limited
Presented at the AIA Luncheon, 20 August 2003
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The Two ‘Not’s
Not solely a matter of rules and regulatory enforcement
Responsibility cannot rest with one body
Also a matter of culture, of ethics
Many parties involved
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Purpose and Nature
Intermediate TargetsProcesses of decision-making and accountability
Focus of regulators
Final OutcomeIssuers make fair and value-added decisions for shareholders
Focus of market
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Corporate Governance is therefore about PROCESSES ……The processes used to direct and manage the business and affairs of the company
with objective of balancing:
The attainment of corporate objectives
The alignment of corporate behaviour with the expectations of society
The accountability to recognised stakeholders
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… The PROCESSES involve :
Responsibilities
Accountabilities
Check and balances
Who should do what
To whom those with responsibilities must account and how
The system of supervision and control procedures and communication flows
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Regulators’ Roles in Promoting Good Corporate Governance
1. Promote awareness of company directors
1. Promote awareness of company directors
2. Promote high level of transparency
2. Promote high level of transparency
3. Provide stakeholders with remedies against unfair behaviour
3. Provide stakeholders with remedies against unfair behaviour
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Historical Development of Corporate Governance in
Hong Kong
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HKEx’s Initiatives in 1990s
1994 Required issuers to disclose detailed directors/management information
1994 Required issuers to disclose detailed directors/management information
1993 Introduced non-mandatory Code of Best Practice
1993 Introduced non-mandatory Code of Best Practice
1994 Announced guidelines on independent non-executive directors
1994 Announced guidelines on independent non-executive directors
1995 Required issuers to include a statement of compliance
1995 Required issuers to include a statement of compliance
1996Required fuller disclosure of information to assess suitability of directors
1996Required fuller disclosure of information to assess suitability of directors
1998 Revised Code of Best Practice
1998 Revised Code of Best Practice
1993 1994 1995 1996 1997 1998 1999
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Other Key Milestones
HK Society of AccountantsHK Society of Accountants
Working groups on corporate governance
Guidelines on audit committees
SCCLRSCCLR Issued Phase I/II consultation papers on corporate governance
SFCSFC
Improvements to the Codes on Takeovers and Mergers and Share Repurchases
Securities & Futures Ordinance
Dual filing procedure
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Market Perception on Corporate Governance
Connected transactions not in the interests of minority shareholders
Unreasonably high remuneration of directors of some poorly performing companies
A number of listed companies are illiquid and with little genuine public floats
General concerns about regulation and disclosure of China-related issuers
Lack of confidence in the regulation of sponsors and IFAs
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Reasons for the Market Perception
Inability of regulators to enforce boundary of unacceptable behaviour
Investors lack legal means to pursue corporate misdemeanours
Regulators’ powers to supervise listed companies are insufficient
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Recent Corporate Governance Initiatives
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“Paragon of Corporate Governance”
January 2002, HKEx Issued consultation paper on proposed amendments to the Listing Rules
July 2002, HKEx Issued consultation papers on initial listing criteria and the delisting mechanism
November 2002, HKEx Issued consultation papers on criteria for continued listing
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May 2003, HKEx & SFCJointly issued consultation paper on the regulation of sponsors and IFAs
May 2003, FSTB & SFCJointly issued “Derivative action” consultation paper
June 2003, SCCLRIssued Phase II consultation paper
“Paragon of Corporate Governance”
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Other Work In Progress
SFC Working on legislation governing public offerings of securities
HK Society of Accountants & SCCLR Reviewing the regulation of accounts and the accountancy profession and proposing to establish an Independent Investigation Board as well as a Financial Review Reporting Panel
Government-appointed Expert GroupReviewing the alignment of responsibilities among the 3 tiers of regulatory system
“Paragon of Corporate Governance”
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Thank you