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 of 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 of 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 overall 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 of us

Thank You