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

1
The Development of Corporate Governance in
Hong Kong Paul M Y ChowChief ExecutiveHong
Kong Exchanges and Clearing LimitedPresented at
the AIA Luncheon, 20 August 2003
2
The Two Nots

• 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
3
Purpose and Nature

• Intermediate Targets
• Processes of decision-making and accountability

Final Outcome Issuers make fair and value-added
decisions for shareholders

• Focus of regulators

• 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

2. Promote high level of transparency
3. Provide stakeholders with remedies against
unfair behaviour
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Historical Development of Corporate Governance in
Hong Kong
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HKExs Initiatives in 1990s
1993 Introduced non-mandatory Code of Best
Practice
1995 Required issuers to include a statement of
compliance
1996 Required fuller disclosure of information to
assess suitability of directors
1993
1994
1995
1996
1997
1998
1999
1994 Required issuers to disclose detailed
directors/management information
1994 Announced guidelines on independent
non-executive directors
1998 Revised Code of Best Practice
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Other Key Milestones
SCCLR

• Issued Phase I/II consultation papers on
  corporate governance

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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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Paragon of Corporate Governance

• May 2003, HKEx SFC
• Jointly issued consultation paper on the
  regulation of sponsors and IFAs
• May 2003, FSTB SFC
• Jointly issued Derivative action consultation
  paper
• June 2003, SCCLR
• Issued Phase II consultation paper

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Paragon of Corporate Governance

• 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 Group
• Reviewing the alignment of responsibilities
  among the 3 tiers of regulatory system

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Thank you