Improvements to corporate behaviour in Asia will only occur very slowly unless asset owners in the region carry out more meaningful engagement with the companies they are invested in.

That is the conclusion of the latest biannual CG Watch corporate governance report issued yesterday (December 5) by CLSA in association with the Asian Corporate Governance Association (ACGA).

Of all the different stakeholder groups, including governments, regulators and auditors, the investor category polled the lowest score.

“We were a bit surprised – we didn’t think investors would score so badly in this survey,” Jamie Allen, secretary general of the Hong-Kong-based ACGA, said.

In drawing out the point, the report is pretty blunt.

“If listed companies think they can get away with boilerplate governance reporting and financial statements with obvious holes, one of the reasons must surely be because they do not fear any blowback from their shareholders," it said.

CG Watch comprises two distinct surveys: a market ranking survey carried out independently by ACGA on macro corporate governance quality in 12 Asia-Pacific markets and a separate survey conducted by CLSA analysts on the corporate governance practices of around 1,100 corporations listed across the Asia-Pacific region.

If the investor category underperforms it’s not because there are no asset owners or managers taking their responsibilities seriously, or because those involved in voting and company engagement are doing a poor job, Allen explained.

“It is because such investors are still so few in number in Asia,” he told AsianInvestor.

Australia’s position at the top of the survey remains secure. As a relatively mature market, Australia has institutional structures – a deep pool of superannuation funds and asset managers – that create the necessary checks and balances.  Whereas in other countries of the region, there are cultural and developmental roadblocks, noted the report.

Allen said that Singapore, for example, is unusual in that it doesn’t really have a natural institutional structure for corporate engagement. “They have Temasek, which perhaps could play a stronger role, but their pension system is structured rather differently (from Australia).”

In other parts of Asia – Japan, Korea, Malaysia – “you have large state-owned asset owners, pension funds, that are a natural institutional structure for corporate engagement,” he continued.

And yet the CG Watch survey still reveals a surprisingly low score for investors on corporate governance.

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The game changer for investors should be the introduction of stewardship codes, said Allen.

Eight of the 12 Asian markets covered by the report now have formal stewardship codes that companies are obliged to sign up to, and where national bodies are actively promoting their adoption by institutional investors

Notable exceptions are Hong Kong and Singapore.

“Hong Kong has lost moral leadership through the introduction of dual-class shares (DCS) and the continued lack of any clear government strategy for corporate governance,” Allen told AsianInvestor.

In a marked shift from their firm opposition to DCS in the last CG Watch survey, Hong Kong and Singapore have since made opportunistic moves towards DCS, which has taken a toll on their scores in this year’s survey. While both markets still rank in the top three, they now do so by the barest of margins.

Malaysia was the biggest gainer this year in both ACGA’s top-down survey as well as CLSA’s bottom-up one, reflecting concrete moves by the new government to tackle endemic corruption issues fostered by the previous Najib Razak regime.

“Stewardship is about active ownership,” Allen said. “It’s about voting [with] your shares, engaging with the company, and taking a long-term view on trying to change corporate governance behaviour.”

He said ACGA would like to see the Hong Kong Monetary Authority take a lead on this.  

“Most markets have a stewardship code. Hong and Singapore have stewardship principles, which are entirely voluntary, so there’s no list of signatories.  We’d like to see the SFC (Securities and Futures Commission) make those changes and have the Monetary Authority sign up and start talking about them, to elevate the issue into the public sphere.”

The HKMA and SFC were both asked by AsianInvestor for comment on the work they are doing to promote better corporate governance.

A HKMA spokesperson said the monetary authority supports the principles of responsible ownership issued by the SFC and requires appointed external managers for its Hong Kong equity active portfolio to adhere to those principles. 

More generally, the HKMA has incorporated ESG factors into various internal procedures for making and monitoring investment activities, said the spokesperson.

The SFC declined to comment.


The two markets that come out well among asset owners, specifically, are Australia and Japan. Allen said Australia has at least 20 years of experience with asset owners and managers working on corporate governance "so there's a natural balance between companies and investors."

And in Japan, “you have a much more diverse group of institutional investors than in any other market in Asia. At the asset owner level, it is very top heavy with GPIF [Government Pension Investment Fund] and also the Pension Fund Association, which has been working on governance since the mid-2000s. Then you’ve got a wide group of asset managers who are now under pressure from GPIF, both on the equity and bond side, focusing on corporate governance.” 

“GPIF is pushing hard to get companies to take this seriously,” he said.

In other parts of Asia, it’s much harder to engage but the ACGA survey reveals that investors are not making the effort.

“Even as early as the mid-2000s, regulators were saying to us ‘why aren’t investors getting more involved, why don’t they care; why aren’t they voting their shares and talking to companies about better governance?’” Allen told AsianInvestor.

Still, for him, the stewardship codes have the potential to be game changers in really getting investors more involved.

“Investors, domestic and foreign, have to find ways to work together and tell companies the sort of governance and disclosure they are looking for. If you don’t ask for better governance, companies are not going to give it to you,” he said. “I think for the next 10 or 20 years, if investors don’t play that role, then corporate governance is going to advance slowly.”

ACGA Market Survey Findings

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Source: ACGA