Report on Improving Corporate Governance in Hong Kong

Оригинал на английском языке.
Гонконгский институт лицензированных публичных бухгалтеров
Hong Kong Institute of Certified Public Accountants
Авторы: Syren Johnstone и Say H Goo
Обзор текущего состояния (дата издания отчета 15.12.2017) корпоративного права Гонконга, основанного на Ординансе "О компаниях" 2014 года (Hong Kong Companies Ordinance) и Ординансе "О ценных бумагах и фьючерсах" 2003 года (Hong Kong Securities and Futures Ordinance). Исследование недостатков действующего режима и предложения о направлениях развития.

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Среда, 08 мая 2019

3. Discussion and analysis of jurisdictions studied. 3.1.6 Maintaining competitiveness

It is well accepted that the burdens and consequential liabilities imposed by regulation is a general factor considered by a company in deciding where to list. This appears to be no different when the specific topic is CG regulation, as confirmed by research undertaken by the UK Government's Department of Business, Innovation & Skills (BIS) in 2013, as discussed in Appendix II.1.1. The BIS research suggested there is a general desire among companies to maintain the status quo, rather than continually increasing the regulatory burden. Nevertheless, there was widespread acceptance that CG regulation and reporting is necessary and desirable for maintaining market standards and providing investors with the required levels of transparency to generate confidence.

One of the essential metrics of assessing a CG system is therefore how well the balance of market standards and an issuer's regulatory burdens is established and maintained.

Where it is proposed to increase the CG regulatory burden, it is therefore appropriate to ask what is the underlying mandate of doing so, or, to put it another way, what further CG regulations are justifiable in view of the standards expected of the market by each of capital users, capital providers, and the providers of liquidity to the market?

The experience of the United States post the introduction of Sarbanes-Oxley Act of 2002 (SOX) is in some ways a relevant case study that testifies to the often mistakenly held belief that a more extensive regulatory system goes hand-in-hand with the concept of a developed market. Introduced in 2002, SOX was an Act intended «To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.» It introduced a number of important provisions relating to financial disclosures including establishing the Public Accounting Oversight Board (PCAOB), and regarding auditor independence and audit committee governance.

However, SOX also had its consequences for the market, the most significant of which being that it acted as a deterrent to foreign companies seeking a listing in the United States, as well as causing others to withdraw their listing. Research suggests that while SOX may have increased the reliability of financial disclosures, less information is available as a result of SOX. It has also been suggested that business agility and responsiveness in responding to the market has been lost, «So when directors are now asked to do something, they respond that they have to make sure they are doing the required certifications. Response and time go out the window." Congressman Oxley, one of the authors of the Act, has expressed concern that the Act may be causing companies to be excessively risk averse for fear of breaching the Act, and that this in turn is damaging economic growth prospects. Finally, it must be pointed out that while SOX toughened audit and disclosure requirements, SOX «did not avert the problems that

have taken place in investment banks and other financial institutions, including excessive leverage and other reckless governance practices.»

Another way to look at this is: what problem is affecting the conditions for free market (e.g. agency cost, investor rationality, etc) and what rule can be designed to remove or address this?

Any consideration of the balancing of market standards and an issuer's regulatory burdens must additionally consider the types of company (in other words, its management and governance profile) that are seeking a listing (or are already listed) on a particular market, or the types of company that a particular stock exchange seeks to attract. The BIS research cited above also found that where companies were already accountable through reporting to private equity shareholders, parent companies, and industry regulators, they were not overly concerned by the additional CG burdens of listing. Nonetheless, such companies still viewed the additional time and cost involved as a burden.


Содержание отчета

Executive summary
Executive Summary I Key Findings
Executive Summary II Summary of Recommendations
Executive Summary III Approach to the Study
Executive Summary IV Abridged Text of the Analysis

1 Introduction to the study and its purposes
1.1 Purpose of this Report
1.2 The development of CG in Hong Kong
1.2.1 Domestic drivers
1.2.2 Global drivers
1.3 Structure of this Report
1.3 Structure of this Report
1.3.1 Methodology
1.3.2 Analysis
1.3.3 Recommendations
1.4 Scope and limitations of this Report
1.5 Next steps

2 Methodology
2.1 Scope
2.1.1 CG concepts
2.1.2 CG Geographic reach
2.1.3 CG mechanisms
2.2 Work process
2.2.1 Data collection
2.2.2 Initial data organization
2.2.3 Oral evidence
2.2.4 Parity check
2.2.5 Analysis
2.2.6 recommendations

3 Discussion and analysis of jurisdictions studied
3.1 Overarching considerations
3.1.1 Thematic topics
3.1.2 Trends in regulating CG standards
3.1.3 The role of culture
3.1.4 The methodology of assessment
3.1.5 Cost-benefit considerations
3.1.6 Maintaining competitiveness
3.1.7 Effectiveness
3.2 Non-locally incorporated companies
3.2.1 Application of local laws and regulations
3.2.2 Cross border enforcement and cooperation
3.3 Information
3.3.1 Legal status of CG disclosures
3.3.2 Disclosure of listing rule compliance
3.3.3 Board evaluation
3.3.4 Audit committee
3.4 Involvement
3.4.1 Shareholder stewardship
3.4.2 Shareholder votes
3.4.3 Remuneration
3.4.4 Changes of control
3.5 Equality
3.5.1 Voting rights generally
3.5.2 Weighted voting rights
3.6 Accountability
3.6.1 Information disclosures generally
3.6.2 Listing rules
3.6.3 Board refreshment
3.6.4 Appointment of independent directors
3.7 Effectiveness
Part A - CG system design
3.7.1 Impact of regulatory design
3.7.2 Policy development agencies
3.7.3 Enforcement agencies
3.7.4 Audits of public companies
3.7.5 Duties of directors
3.7.6 Role of fiduciary law
Part B - Specific actions
3.7.7 Differentiation of CG requirements
3.7.8 Listing regime standards upon entry
Part C - Independent directors
3.7.9 Determination of independence
3.7.10 Requirements relating to INED performance
3.7.12 Empowerment of INEDs - controlling shareholders
Part D - Other items
3.7.13 Whistle-blowing
3.8 Coda

4 Recommendations
Introduction and approach to the recommendations
Part A - The board
4.1 Processes
4.2 Independent directors
4.3 CG standards
Part B - Enforcement
4.4 Shareholders
4.5 CG disclosures
4.6 Regulators
4.7 Ex ante mechanisms
Part C - Architecture and policy
4.8 Architecture
4.9 Policy
4.10 Summary tables

5 Concluding remarks
5.1 The Recommendations
5.2 The Hong Kong market

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