The Hong Kong government displays an ambivalent attitude to corporate governance and is more concerned with the short-term expansion of its stock market, according to Jamie Allen, secretary-general of the Asian Corporate Governance Association (ACGA).
“Much of the drive to boost listings is a reaction to competitive [or perceived] pressures from Shanghai,” he says.
Allen goes on to suggest that while much progress has been made in corporate governance over the past decade in Asia, the reform process has only reached the half-way mark in most markets.
“Governments and regulators need to be more consistent in their approach to reform and less influenced by short-term booms and busts,” he tells AsianInvestor.
“Listed companies would help themselves if they were more open-minded about the value of better governance, for example in terms of higher market valuations. And institutional investors should be more engaged in the reform process.”
Allen was speaking on the back of a report released this week by ACGA in association with broker CLSA Asia-Pacific Markets.
The report findings are notable for the fact that Singapore snatched back the high ground from Hong Kong in terms of corporate governance standards. Hong Kong, which dethroned the Singapore for the first time in 2007, dropped to second place. Its total score fell two percentage points, to 65% from 67%.
After a good performance in 2008, when a series of positive listing rule changes were agreed, Hong Kong suffered a regulatory breakdown in early 2009, following an attack by local tycoons on plans to extend the black-out period for director share trading, the report found.
“Since then, little meaningful corporate governance policy or regulatory reform has taken place,” says Allen, noting that both the direction of reform in Hong Kong and its final score are of concern.
More positively, however, the report acknowledges that Hong Kong's Securities and Futures Commission (SFC) has taken a tougher and more effective stance against insider trading, market manipulation and other misconduct.
Overall, the ACGA assessed 11 markets across Asia in this report, asking intermediaries, third parties and regulators a total of 90 questions in four categories: corporate government rules and practices; enforcement; political and regulatory environment; and accounting and auditing.
Countries were ranked on a percentage basis as follows: Singapore (67), Hong Kong (65), Japan (57), Taiwan (55), Thailand (55), Malaysia (52), India (49), China (49), Korea (45), Indonesia (40), and the Philippines (37).
The report notes, however, that even the top-performing markets remain far from international best practice, and that regulators generally make it too easy for companies to get away with box-ticking.
“Markets still lack effective rules on fundamentals such as independent directors and audit committees, while not enough has been invested to make best practices work,” it found. “Most institutional investors are yet to invest sufficiently in voting, engagement or stewardship."
“Rather than use the global financial crisis as a platform to push reform forward, governments have taken a complacent view, happy that the crisis this time did not start in Asia.”
Thailand, Japan and Indonesia – having underperformed for extended periods in the past – stand out this year as big improvers, while China and Malaysia also function better, the ACGA reported. India, Korea and the Philippines were the worst performers relative to previous years.
Thailand enjoyed an eight percentage-point jump in its final score from the last time the research was done three years ago, and wins the award as the “most improved” country. Japan rose five percentage points and Indonesia three points.
Given that reforms in Japan appeared to be stuck only two years ago, its performance shows what can be done when regulators display determination and market consensus starts to shift, the report noted. Indonesia was expected to come last, but did move ahead of the Philippines.
Co-authors of the report were Allen, Amar Gill who is head of thematic research at CLSA, and Simon Powell, head of sustainable research at ACGA.