Symposium on Corporate Governance and Disclosure: Enhancing the - - PowerPoint PPT Presentation

Symposium on Corporate Governance and Disclosure: Enhancing the Competitiveness of Hong Kong Andrew Sheng

Chairman Securities and Futures Commission 22 February 2001

The Importance of Good Corporate Governance

 Consider:

 Microsoft - market capitalization of US$636bn

at its peak, today qualifies to join G-7

 The total market capitalization of the top

Asian 100 companies is US$2,511bn, nearly twice as large as the Chinese GDP

 Nokia has a market capitalization of

US$125bn, on par with Finland’s GDP of US$126bn in 1999

Raising the Quality of Corporate Governance

 Challenge for and Involvement of

All :

 Issuers  Directors  Regulators  Policy-Makers  Educators  Investors

Quality of Capital Markets

 Determined by :

 Quality of Information  Quality of Listed Companies  Quality of Intermediaries  Quality of Regulation  Quality of Investors

Quality of Information

 Reliable and timely information is a

market fundamental

 Good information is like good water - it

is a public good

 SFC is working with HKSA to move to

IAS and IOSCO 2000 standards

 HKEx is working on its Listing Rules to

expedite disclosure and access to corporate information

Quality of Listed Companies (1)

 Determined by the owners and managers

• f the listed companies

 Benefits of good corporate behaviour:

 Generate greater investor confidence  Bring greater quality to the markets

 Evidence show that investors are willing

to pay a premium for better governance

Quality of Listed Companies (2)

 Market Price and Market Capitalization are the

most democratic judges of quality

 In mature markets, institutional investor-led

companies dominate the corporate horizon more than the family tradition.

 In Asia, 60% of total market value held by

family-led firms holding more than 20% of the equity of listed companies

 Compare this with:

 US - 18.3%  Australia - 12.2%  Japan - 9.7%  UK - 0%

Quality of Listed Companies (3)

 In Hong Kong, the Share of Market

Capitalization between 1987 and Jan 2001 of:

 Institution-based ownership - increased

from 12% to 26%

 Family-led ownership - shrank from 37%

to 24%

 Red Chips, H Shares and Government-

led listed companies - rose from 0% to 30%

Quality of Listed Companies (4)

 The proportion of institution-led

companies will rise with the arrival of the MPF and more broad-based IPOs of Mainland enterprises

 Corporate governance change will come

about partly by market pressure, but more often because company owners and managers themselves want to change

Quality of Intermediaries

 Institutionalization and specialization of

skills shape the quality of financial service

 Intermediaries have to be more focused

and market oriented to survive and compete

 The SFC and HKEx signed a MOU on 20

Feb 2001 to rationalize the regulation of intermediaries

Quality of Regulation (1)

 Sir Adrian Cadbury considered corporate

governance in its broadest sense: “ takes in the whole framework within which companies operate. That framework is partly set by the law, partly by the participants themselves and more widely by society ”

Quality of Regulation (2)

 The regulatory scope of corporate governance

has to be examined within the context of a whole body of codes, rules and law. These include:

 Listing Rules  Takeover Code  Market Codes of Conduct  Securities Law  Companies Law  Anti-corruption Law  Bill of Rights  etc...

Quality of Regulation (3)

 Direct responsibility for corporate

governance is spread across many agencies and regulatory bodies:

 Unlisted companies - Companies Registrar  Listed companies - SEHK  Intermediaries - SFC  Wrongdoing in a corporation:

 Commercial crime - CCB  Corruption - ICAC  Suspected crime / fraud / misconduct - s143

• f the Companies Ordinance and s29A of the

SFC Ordinance

Quality of Regulation(4)

 In Hong Kong, Standing Committee on

Company Law Reform is conducting the

• verall review and will make

recommendations on changes in the Companies Law

 On enforcement effort, since 1998 to date, the

SFC has:

 referred 8 insider dealing actions for

eventual trial by the Insider Dealing Tribunal

 achieved 123 successful convictions for

market offences

 achieved 306 successful disciplinary

actions

Quality of Regulation(5)

 The SFC is working closely with HKEx to

ensure the Listing Rules are enforced to enhance disclosure

 The SFC is working through its Advisory

Committees to find ways for upgrading the protection of minority shareholders’ rights

 The Composite Bill has moved towards

enforcement against market misconduct by creating the Market Misconduct Tribunal

Quality of Investors (1)

 Investors Activism: -

 California Public Employees Pension

Scheme - largest public pension fund in the US, the 3rd largest in the world

 Swedish Association of Investors -

successfully lobbied for changes in protection of investor rights

 Minority Shareholder Watchdog Group Ltd

in Malaysia aims to reform companies

 In Mainland, CSRC is looking to work with

investor associations

Quality of Investors (2)

 The SFC launched the electronic

investor information website HKeIRC in July 2000

 The SFC is continuously working with

the Hong Kong Securities Institute and the HKEx to improve investor education on a broad front

 A commitment to the highest

corporate governance practices may require a cultural shift

 Higher quality markets and

corporate governance involve all

• f us

Thank You