One of the world’s foremost authorities on corporate governance is urging Asian companies to improve their corporate governance practices – or risk losing investment capital to other markets.
According to Florencio López-de-Silanes, associate professor of public policy at Yale University and head of Yale’s International Institute of Corporate Governance, Asia’s family-owned companies create perception problems over the independence of non-executive directors. ‘Hong Kong and Asian companies need to ensure their independent and non-executive directors are really independent from the major shareholders and the management of the companies,’ he says. ‘They also need to show their directors are well trained and qualified for the job.’ he adds.
There has been a concerted effort to improve levels of corporate governance in Hong Kong. Despite this, a new report by the Conference Board confirms that the high level of family ownership is the main impediment to reform.
‘Hong Kong was the first in the region to make huge progress in related party transactions and disclosure, but it has stalled in the moves towards independent directors because high levels of family ownership prevent progress in that direction. In the global perspective it is now somewhat of a laggard,’ says Dr Carolyn Kay Brancato, director of global corporate governance at the Conference Board.
In the course of the study, Brancato conducted extensive interviews with corporate executives and regulators. She noted a sense of reluctance among many involved in family-owned businesses to adopt corporate governance practice. ‘It’s another world,’ she says. ‘We would talk about CEO succession and the nomination of directors and they would just say, The family does that. Anything else was just not in their vocabulary.’
Singapore in action
Singapore has a new rule-maker, the Council on Corporate Disclosure & Governance (CCDG), comprising 15 individuals from the private and public sectors and from academia. They include Singapore Exchange chairman JY Pillay, Standard Chartered Bank chief executive Euleen Goh, Ernst & Young chairman Fang Ai Lian and CapitaLand chief executive Liew Mun Leong.
The CCDG is working closely with the Institute of Certified Public Accountants in Singapore (ICPAS) to issue joint accounting and disclosure standards. In a controversial first move, it is planning compulsory quarterly reporting. While some commentators support the initiative as a means of improving market information, others point to the recent failures of the US’s quarterly reporting mechanism as an argument against introducing the new system.
Alison Chow, CEO if irasia.com, is an advocate of the initiative. ‘Any and all effort by listed companies and the stock exchange to disclose material information in a timely manner to all investors will be positive as it furthers the transparency of listed companies,’ she says. Chow, however, cautions against viewing quarterly reporting as a panacea. ‘Quarterly reporting may help but cannot be assumed to be the cure-all.’
Malaysian reform
It’s been a busy summer for corporate governance reform in Asia. The Kuala Lumpur Stock Exchange has set up a task force on corporate disclosure encompassing the Malaysian Institute of Corporate Governance, the Malaysian Institute of Chartered Secretaries and Administrators, as well as senior executives from Malaysian companies Surf88.com, the Hong Leong Group and Sime Darby Group. The KLSE’s deputy president for strategy and development, Abdul Hamid Mohamed, says the task force will focus on building international best practice corporate governance techniques in Malaysia: ‘Basic corporate governance requirements are already included in our listing rules. The task force will be looking to introduce some additional practices.’
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