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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Вторник, 14 мая 2019

3. Discussion and analysis of jurisdictions studied. 3.4.1 Shareholder stewardship

In the UK, the drive to encourage shareholders to become more actively interested in the affairs of the company has taken various forms. One example of the broader initiative undertaken is the FRC's introduction of the first version of the Stewardship Code in 2010. This Code comprises a voluntary set of principles to assist institutional investors in the exercise of their shareholder responsibilities towards UK listed issuers. It is backed by the requirement of the FCA, in its role as the regulator of financial firms, that UK authorized asset managers report on whether they comply with the Stewardship Code.

However, the Stewardship Code has not translated into shared responsibility and enhanced collaboration between the board and shareholders. As discussed in Appendix

II. 4.3, shareholder engagement has declined over the 2016 period, this is despite additional shareholder powers in relation to the board, in particular dual-voting, being made available to shareholders. UK institutional investors tend to be non-confrontational and passive and activist shareholders are uncommon.

In the United States, by contrast, there is a clear profile of activist shareholders that are taking an aggressive and confrontational approach, demanding that boards implement their strategies and insert their board appointments. This has not always led to productive outcomes, as discussed in Section 3.4.3 «Remuneration» (see also Appendix

III. 1.2). As discussed in Appendix III.7.2, the SEC has been trying to facilitate the role of shareholders more widely via, inter alia, federal proxy rules to remove various impediments to shareholder involvement. However, the rules were successfully challenged in court and rejected.

The current extremities of acquiescence and friction between professional shareholders and boards of directors in a context of government and regulatory intervention in the roles and rights of shareholders as well as remuneration mechanisms are evidence that a regulatory-commercial grey area has developed. Developments in the specific roles, powers, and enforcement scope of the regulators have occurred because an environment whereby market participants are active and consistent in promoting the principles of the responsible investing has failed to develop. However, regulatory intervention in traditionally commercial matters has not always been successful.

Hong Kong

The SFC introduced the «2016 Principles of Responsible Ownership», which largely follows the lead established by the FRC's Stewardship Code. However, there is little evidence that it is having an impact. As noted in Appendix I.2, Hong Kong has few activist shareholders and, despite an increase in institutional shareholders in Hong Kong in recent decades, a relatively larger participation of retail investors in the public market, who tend to be relatively inactive. Media reports of activist and institutional shareholders in Hong Kong are quite rare. Institutional interaction with listed issuers does occur, although this tends to be on a more informal and private basis with the board. This stands in contrast to the United States where shareholder activism is apparent, and the UK where activism is on the rise. However, there have been two recent high-profile examples of activism being imported to Hong Kong. In the first, a United States based fund manager (Elliot International) holding shares in a Hong Kong listed issuer (Bank of East Asia), has petitioned the Hong Kong court alleging that the affairs of the issuer have been conducted in a manner unfairly prejudicial to the interests of its shareholders. In the second, a dispute between a Nasdaq listed issuer (Sina Corp) and a United States investment manager (Aristeia Capital) concerning the appointment of two directors nominated by Aristeia was played out in an annual general meeting held in Hong Kong in November 2017. Both cases represent somewhat unique instances of exposing Hong Kong shareholders to activism.

Perhaps similar to the UK, some institutional shareholders are implementing their own approaches, e.g. Blackrock's «Corporate governance and proxy voting guidelines for Hong Kong securities». However, in both the UK and Hong Kong markets retail investors in general tend to be relatively uninvolved as shareholders with rights and behave more like investors with the power to sell.

In Singapore, the Securities Investors Association Singapore is the body that represents shareholders - it is active in promoting shareholder rights through boardroom activism rather than the courtroom, although it is prepared to do so in appropriate cases (see Appendix V.5.1). In November 2016, the Stewardship Asia Centre on behalf of the Singapore Stewardship Principles Working Group issued the «Singapore Stewardship Principles for Responsible Investors. Despite the adoption of the Stewardship Principles, there is no evidence of a rise in shareholder involvement or activism.

In Mainland China, although institutional investors have an increased presence, they are still smaller compared to the controlling shareholder of SOEs, the State. Thus, activism by institutional investors remains low (see Appendix IV.5.4). There is no Stewardship Code. In a survey by Institutional Shareholder Services in November 2014, it was found that (1) the level of engagement between Mainland Chinese companies and foreign investors is low compared to Unites States companies, and engagement is usually initiated by investors; (2) philosophical, cultural, and language differences are significant barriers to constructive dialogue between Mainland Chinese issuers and investors; (3) voter turnout at mainland-listed Chinese companies is approximately 55 percent, the lowest among the markets studied; (4) investors of mainland-listed companies are more concerned with related-party transactions and share issuances without preemptive rights than other common voting agendas, and are more vocal about these issues through their votes; (5) nearly half of all proposals at mainland-listed companies are approved unanimously, while such unanimous consent is much less frequent in other markets studied; and (6) while shareholder proposals are not uncommon in Mainland China, nearly all are presented by controlling shareholders, and typically receive more than 95 percent support.

Discussion

Based on the lack of traction the Stewardship Code has had in the UK to date and the particular characteristics of the Hong Kong market at present, there is little to suggest that significant inroads to shareholder participation in a listed issuer will be obtained through a stewardship approach, at least at the present time. However, this is not to suggest that stewardship is an unworthy idea in principle. Rather, it is suggested that stewardship is not a concept that should be expected to be integrated into a market within a short period of time. It is more likely to be part of a generational cum cultural shift as shareholders come to feel increasingly empowered in the exercise - and enforcement - of their rights. Instances such as the Elliot and Aristeia actions may serve to promote change more than regulatory dicta might. Accordingly, for the purposes of this study, it is considered that laying the foundation for an appropriate level of empowerment is an important precursor to and facilitator of stewardship in the wider shareholder context. The scope of the present study being to identify recommendations that are likely to be more resource-effective in that they should be supported by a mandate from the market and/or have a high expectation of achieving measurable improvements in CG standards, it is suggested that stewardship principles may need to be revisited at some future point in time when ground conditions in the market may be more responsive.

 

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
Introduction
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
Introduction
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
Introduction
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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