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 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 Encourage adoption of best practice of corporate governance in Hong Kong through a systematic evaluation of current practices Define a methodology/ framework to assess corporate governance practices in Hong Kong Develop specific criteria and a measurement tool to evaluate individual companies Set up processes to evaluate corporate governance of Hong Kong companies on an annual basis 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 principle Number of questions & sub-questions A.Rights of shareholders 16 B.Equity of shareholders 10 C.Role of stakeholders 4 D.Disclosure and transparency 30 E.Board responsibilities 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 (Tobins Q) by Corporate Governance Entry Quartile 11 Corporate Governance Performance by Indices HSI ( ) HSHKCI ( ) HSCEI ( ) HSCCI ( ) Weak Strong 12 Corporate Governance Performance by Industries Weak Strong 13 Corporate Governance Performance by Categories Weak Strong A: Rights of Shareholders ( ) B: Equitable Treatment of Shareholders ( ) C: Role of Stakeholders in Corporate Governance ( ) D: Disclosure and Transparency ( ) E: Board Responsibilities ( ) 14 A.Rights of Shareholders ( ) 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? 15 A.Rights of Shareholders (388) ( ) 16 B. Equitable Treatment of Shareholders ( ) Improvements: Provide rationale/ explanation for related-party transactions Allow minority shareholders to influence the Board To facilitate voting by proxy 17 B. Equitable Treatment of Shareholders (762) ( ) 18 C. Role of Stakeholders in Corporate Governance ( ) Improvements: Disclose more details on the safety and welfare of its employees Long-term employee incentive plan 19 C. Role of Stakeholders in Corporate Governance (2388) ( ) 20 D. Disclosure and Transparency ( ) Improvements: Transparency in ownership structure Quality of Annual Report Basis of Board members remuneration Operating risks Communication with shareholders Websites contents 21 D. Disclosure and Transparency (45) ( ) 22 E. Board Responsibilities ( ) 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 23 E. Board Responsibilities (2) ( ) 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) AllHSIHSHKCIHSCCIHSCEI Market ValueMean20, , , , , (in million HK$)S.D.76, , , , , ROAMean S.D Ln(TA)Mean S.D CurrentMean S.D D/EMean S.D No. of firms with the committee Dummy CEO & Chairman Dummy Audit committee Dummy Compensation Dummy ADR Dummy MSCI Dummy H Share & Red Chips The Characteristics of Our Sample Companies OLS Results for CGI with Control Variables MTBV (1)(2)(3)(4)(5) CGI0.0330**0.0428**0.0475***0.0356**0.0337** ROA2.5282**3.0430***3.0431***2.2866** Ln(TA) *** ** ** *** Current D/E BOUT BEXC *** ** Top *** *** Dummy CEO & Chairman Dummy Audit committee Dummy Compensation Dummy ADR Dummy MSCI1.4939*** Dummy H Share & Red Chips0.3374 OLS Results for Transparency Index with Control Variables MTBV (1)(2)(3)(4) TINDEX0.0371**0.0414**0.0373**0.0388*** NONTINDEX0.0179*0.0202** ROA2.3482**2.8850***2.8973***2.1137** Ln(TA) *** *** ** *** Current D/E BOUT BEXC *** ** Top *** *** Dummy CEO & Chairman Dummy Audit committee Dummy Compensation Dummy ADR Dummy MSCI1.4847*** Dummy H Share & Red Chips0.2346 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 shareholders share holding add into the model 31 Concluding Remarks Similar results are found in Thailand Comparison among different markets 32 ~ END ~