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Corporate Governance Reform: Regional Cooperation

Corporate Governance Reform: Regional Cooperation. Prof Stephen Y L Cheung City University of Hong Kong. Contents. Why it is important? What has been done? What next?. Regional Effects.

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Corporate Governance Reform: Regional Cooperation

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  1. Corporate Governance Reform: Regional Cooperation Prof Stephen Y L Cheung City University of Hong Kong

  2. Contents • Why it is important? • What has been done? • What next?

  3. Regional Effects • The ‘Guidelines for Good Corporate Governance Practice’ prepared by the PECC, endorsed by APEC ministerial meeting • Scorecard for listed companies • Thailand • Hong Kong • China • The Philippines

  4. Research Methodologies I • Survey results based on publicly available information • Hang Seng Index (HSI), Hang Seng Hong Kong Composite Index (HSHKCI), Hang Seng China-Affiliated Corporations Index (HSCCI) and Hang Seng China Enterprises Index (HSCEI) constituent stocks • Based on information disclosed in 2002 • 168 major companies are covered

  5. Research Methodologies II • Avoids subjectivity bias • Not dependent on companies’ willingness • However, not as rich as an internal assessment ... • ... and captures only what the companies released in public and their documentation • Written request was sent to individual companies. Only a few companies supplied us with information

  6. Objectives of Corporate Scorecard for Hong Kong Listed Companies Hopefully

  7. Consistency • Each company was rated by two different members • The overall results were cross-checked by academics

  8. Scorecard Followed The Five OECD Corporate Governance Principle • OECD is internationally recognized • HKEx guidelines comprehensively covered • 168 public companies surveyed

  9. Positive Correlation between Good Corporate Governance and Company Valuation

  10. Market Valuation (Tobin’s Q) by Corporate Governance Entry Quartile

  11. Strong Weak Corporate Governance Performance by Indices HSI (恒生指數) HSHKCI (恒生香港綜合指數) HSCEI (恒生中國企業指數) HSCCI (恒生香港中資企業指數)

  12. Strong Weak Corporate Governance Performance by Industries

  13. Strong Weak Corporate GovernancePerformance by Categories A: Rights of Shareholders (股東的權利) B: Equitable Treatment of Shareholders (對股東的公平待遇) C: Role of Stakeholders in Corporate Governance (利益關係團體在公司治理中扮演的角色) D: Disclosure and Transparency (公開與透明化) E: Board Responsibilities (董事會的責任)

  14. Rights of Shareholders (股東的權利) Improvements: • Improve the quality of Notice to Call Shareholders Meeting • Attendance of all Board members • AGM minute • any Q&A sessions? • any resolutions being solved? 84.49 27.79

  15. Rights of Shareholders (388)(股東的權利)

  16. B. Equitable Treatment of Shareholders(對股東的公平待遇 ) Improvements: • Provide rationale/ explanation for related-party transactions • Allow minority shareholders to influence the Board • To facilitate voting by proxy 93.33 63.33

  17. B. Equitable Treatment of Shareholders (762)(對股東的公平待遇 )

  18. C. Role of Stakeholders in Corporate Governance(利益關係團體在公司治理中扮演的角色) Improvements: • Disclose more details on the safety and welfare of its employees • Long-term employee incentive plan 100 41.67

  19. C. Role of Stakeholders in Corporate Governance (2388)(利益關係團體在公司治理中扮演的角色)

  20. D. Disclosure and Transparency(公開與透明化 ) Improvements: • Transparency in ownership structure • Quality of Annual Report • Basis of Board members’ remuneration • Operating risks • Communication with shareholders • Website’s contents 90.33 64.01

  21. D. Disclosure and Transparency (45)(公開與透明化 )

  22. E. Board Responsibilities(董事會的責任 ) Improvements: • A set of written corporate governance rules • Corporate vision/mission • The quality of the Audit Committee Report in the Annual Report • Attendance • Internal control • Management control, etc. 81.67 41.67

  23. E. Board Responsibilities (2)(董事會的責任 )

  24. Results • NOT finger-pointing exercise • Important input for policy-makers, companies, and the public • Score for individual companies will not make public • Feedback report can be obtained for individual companies

  25. The Top 10 Best Performing Companies (by alphabetical order) • Asia Satellite (1135) • Bank of East Asia (23) • China Mobile (941) • CLP Holdings (2) • HK & S Hotels (45) • HKEx (388) • HSBC Holdings (5) • Linmark Group (915) • MTR Corporation (66) • Vtech Holdings (303)

  26. The Characteristics of Our Sample Companies

  27. OLS Results for CGI with Control Variables

  28. OLS Results for Transparency Index with Control Variables

  29. Result (I) • Corporate governance does matter • Positively and significantly related to the market value • Number of executive directors have negative impact • The top 5 shareholders’ holding have negative impact • The inclusion in the MSCI have positive impact

  30. Result (II) • Transparency and non-transparency indices • Transparency index does matter • Non-transparency index become insignificant when the number of executive director and top 5 shareholder’s share holding add into the model

  31. Concluding Remarks • Similar results are found in Thailand • Comparison among different markets

  32. ~ END ~

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