1 / 12

Your Board How Independent is it A Hong Kong Perspective

Outline of presentation. Hong Kong's capital market and key characteristicsIndependent Non-Executive Director (INED) qualifications, responsibilities and appointment processImplications of family controlWhy do firms appoint and why people accept the role of INEDs?How independent are Hong Kong I

chelsa
Download Presentation

Your Board How Independent is it A Hong Kong Perspective

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

    1. Your Board How Independent is it? A Hong Kong Perspective Roger King, PhD Adjunct Professor of Finance Director of Center for Asian Family Business Studies Director of Center for Business Case Studies

    2. Outline of presentation Hong Kongs capital market and key characteristics Independent Non-Executive Director (INED) qualifications, responsibilities and appointment process Implications of family control Why do firms appoint and why people accept the role of INEDs? How independent are Hong Kong INEDs opposing views Comments and conclusions

    3. Hong Kongs Capital Market Ranked 5th by market capitalization with a total market capitalization of US$2.124 trillion (2007) Ranked 1st in number of IPOs (2006) Ranked 4th by equity fund raised (2005) Highly concentrated ownership 70%+ of listed firms are family controlled with another 20%+ SOEs

    4. Hong Kongs Key Characteristics Named the world's freest economy for the 15th straight year (2008) - The Heritage Foundation and the Wall Street Journal Law and order: Common law system (British) Ranked 13th GDP per capita (PPP), US$42,000 (2007 est.) Source: US CIA

    5. Key Characteristics contd Hong Kong, as a colony was regarded as a "borrowed place and borrowed time" (Hughes, 1968) immigrate mentality Asset light investments (ex real-estate) Purpose of IPO for family firms? Reputation seeking vs. capital rising Blurring of the political, social and business network

    6. Qualifications, Responsibilities and Appointment process The listing rules of the Stock Exchange of HK define an INED as someone: Does not participate in the operation or the management of the issuer Not related (as in relative) to the management No financial interest other than the remuneration as director paid by the issuer

    7. Qualifications, Responsibilities and Appointment process, contd At least one INED (out of a minimum of 3) must have appropriate professional qualifications or accounting or related financial management expertise but what does this mean? In the performance of duties: Act honestly and in good faith Be answerable to the issuer for application of assets Avoid actual and potential conflicts of interest Apply such degree of skill, care and diligence as may be reasonably be expected

    8. Qualifications, Responsibilities and Appointment process, contd Responsibilities: Participate in formulating strategy Oversight of management Independent stand Protect the interest of all shareholders Appointment process: Initially appointed or recommended by the board (nominations committee if it exists) To be confirmed by all shareholders at the AGM

    9. Preserving Family Control The preservation of ownership for subsequent generations is one of the key distinctive characteristics of family businesses Three broad theories of benefits to families of preserving control - Burkart et al., (2003) amenity potential or non-pecuniary benefit reputational benefit ability to extract private gains for family members at the expense of outside investors

    10. Appointments and acceptance of INEDs What is the purpose of INEDs for family controlled firms watch-dogs, advisors or to increase the relationship network? Why do firms appoint and why people accept/seek the role of INEDs? Reputation vs. monetary gains For firms: reputable INEDs reduces IPO under-pricing King and Peng (2008) For INEDs: A HK legislator received an annual directors fee of HK$5.35M (US$679K) for serving on 15 companies as INEDs. A HK tycoon, chairman or director of 10 listed HK companies and 12 overseas organizations, knighted by 3 governments and has at least 6 honorary doctorates. Recently fined by US SEC US$8 million for inside information disclosure

    11. Comments and Conclusions David Webb, a well respected shareholder activist, argues that all Hong Kong INEDs are not independent because of the current appointment process. How does one allay the concerns of family controlled listed firms? The notion of reputation as a check-and-balance mechanism Qualities of INED for family businesses: A personal view High personal integrity Non-reputation seeking but highly respected in the community (networking) Successful business person (advisory) with an understanding of the concerns of family business ownership

    12. Comments and Conclusions, contd Could truly independent non-executive directors have prevented fraud committed by the Chairman of Satyam Computer Services Ltd.? A faculty of Harvard University A former cabinet secretary A former director renown Indian academic institution Dean of a renown Indian business school Is independence, skill set or time commitment the real issue?

More Related