Blazing the corporate governance trail

In his 2001-2002 budget speech, the Financial Secretary said it is imperative that Hong Kong "continue to enhance our corporate governance" as an international financial centre, even though this standard is among the highest in the region. 

The Government has commissioned the Standing Committee of Company Reform to conduct a comprehensive review on corporate governance beginning this year. Soon, regulators such as the Hong Kong Exchanges and Clearing Ltd, the Securities and Futures Commission and the Hong Kong Monetary Authority are expected to propose recommendations and guidelines to further improve the territory's corporate governance standards.

"In the overall context of Hong Kong's recent push for better corporate governance," said Professor Judy Tsui, Head of the Accountancy Department and Executive Director of CityU's Accounting and Corporate Law Centre (ACLC), "our study is not only timely but carries significant policy implications."

Since its establishment some four years ago, the ACLC has targeted corporate governance issues as one of its research focuses, with academic conferences, seminars and journals devoted to the important issue. One notable achievement

was a paper last year that Professor Tsui and Professor Ferdinand Gul, also of ACLC, wrote for the OECD Second Asian Roundtable on Corporate Governance. This paper won for the two authors an applied R & D award at CityU this year. Based on this achievement and now with funding from the Faculty of Business, the team will try to extend their reach. They have initiated an applied research project to carry on their inquiries in the area, but with a slightly different outcome this time around.

The current study, Professor Tsui explained, will lead to the publication of a book, based on a comprehensive survey on corporate governance systems in Asia, including Indonesia, Malaysia, Thailand, China, the Philippines as well as other advanced jurisdictions such as Australia, Singapore, Canada, the United States. "We hope to compare the strengths and weaknesses of Hong Kong's practices in the corporate governance area vis-a-vis the current practices in advanced countries."

In the book, the research team will document the existing corporate governance system in Hong Kong and how this system has evolved in a legal and regulatory context. The current framework of corporate governance in Hong Kong, according to Professor Tsui, includes both statutory and non-statutory requirements. The former area consists of the Companies Ordinance, Securities (Disclosure of Interests) Ordinance, Securities (Insider Dealing) Ordinance and the Takeover Codes. The latter area refers to those required under the Listing Rules covering the number of independent non-executives directors, disclosures of connected transactions and disclosures of the different components of directors' remuneration.

The study also aims to carry out a thorough review of important corporate governance mechanisms such as audit, nomination and remuneration committees, with a view towards making recommendations for regulations and policies. "We'll examine the role of these committees in the context of the overall climate of corporate governance and the existence of other corporate governance devices in Hong Kong and other Asian countries," Professor Tsui explained. "So far, there is no such comparative study on corporate governance in the Asia-Pacific region."

A combination of research methods-literature reviews, surveys, interviews and analysis of various published reports-will be used to gather the data. Outside of Hong Kong, collaboration from known professionals and academics will bring together the necessary expertise and perspective. The study is expected to be completed by the year's end and the book is scheduled for publication in 2002. "This will be an important step on our long journey of understanding corporate governance," she said.