Corporate reform in East Asia

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Corporate reform in East Asia

• Prof. Stephen Y.L. Cheung
• Department of Economics Finance
• City University of Hong Kong

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Priorities in promoting corporate governance in
East Asia (I)

• Board
• Increase the number of independent directors
• Transparent board structure
• Heighten fiduciary duty of BoD
• Criterion of the board of directors

3
Priorities in promoting corporate governance in
East Asia (II)

• Law and regulations
• Stringent regulation to cope with corruption
• Enforce legal framework
• Strengthen capital market regulation

4
Priorities in promoting corporate governance in
East Asia (III)

• Disclosure
• Timely and sufficient financial disclosure
• Adopt an international standard accounting
• Non-financial disclosure
• Corporate governance/ ethical/ social issues
• Better risk management

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Priorities in promoting corporate governance in
East Asia (IV)

• Shareholders
• Strengthen minority shareholder protection
• Educate the public shareholders
• Exercise their rights
• Encourage participation of institutional and
  shareholders in monitoring performance

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Comparison of corporate governance in East Asian
Economies (I)

• Criterion of the board members

Hong Kong Very general guideline. e.g. level-headed, relevant management experience and knowledge, etc.
Japan Very general guideline. e.g. level-headed, relevant management experience and knowledge, etc.
Malaysia Very general guideline. e.g. level-headed, relevant management experience and knowledge, etc.
Singapore Very general guideline. e.g. level-headed, relevant management experience and knowledge, etc.
South Korea Very general guideline. e.g. level-headed, relevant management experience and knowledge, etc.
Thailand Age, background, qualification
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Comparison of corporate governance in East Asian
Economies (II)

• Separation of chairman and CEO

Hong Kong Not discussed
Japan Dual roles are allowed with explanation
Malaysia Dual roles are allowed with explanation
Singapore Dual roles are NOT allowed
South Korea Not discussed
Thailand Not discussed
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Comparison of corporate governance in East Asian
Economies (III)

• Board size

Hong Kong Not discussed
Japan No maximum/ minimum is set. The size should be decided by the Board.
Malaysia No maximum/ minimum is set. The size should be decided by the Board.
Singapore No maximum/ minimum is set. The size should be decided by the Board.
South Korea No maximum/ minimum is set. The size should be decided by the Board.
Thailand No less than 5
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Comparison of corporate governance in East Asian
Economies (IV)

• Independent directors (IDs)

Hong Kong No max. / min. is set
Japan No max. / min. is set
Malaysia At least 1/3 of the board
Singapore Max. of 1/3 or 2 IDs
South Korea At least 3 IDs Listed co. at least 1/4 FIs at least 1/2
Thailand At least 2 IDs
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Comparison of corporate governance in East Asian
Economies (V)

• Remuneration review

Hong Kong Not discussed
Japan Remuneration committee
Malaysia Executive directors links with corporate/ individual performance IDs reflects level of responsibilities
Singapore Executive directors links with corporate/ individual performance IDs reflects level of responsibilities
South Korea Fair evaluation
Thailand In accordance with Articles of Association
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Comparison of corporate governance in East Asian
Economies (VI)

• Assessment of board performance

Hong Kong Not discussed directly
Japan Not discussed directly
Malaysia Nominating committee
Singapore Nominating committee
South Korea Fair evaluation
Thailand Not discussed
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Comparison of corporate governance in East Asian
Economies (VII)

• Communication with institutional and retail
  investors, and information disclosure (I)

Hong Kong - Disseminate price-sensitive information in a timely manner - Clarify any unusual price movement or rumours
Japan BoD and management are responsible for providing accurate, substantive, practical and reliable information. - Fund managers, analysts and major shareholders receive privileged information Adopt the international standard accounts Introduce the quarterly reports
Malaysia Encourage direct contact and monitoring by institutional investors
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Comparison of corporate governance in East Asian
Economies (VIII)

• Communication with institutional and retail
  investors, and information disclosure (II)

Singapore - Communicate with shareholders effectively and fairly - All the material information should be fully disclosed to the public before disseminating to others.
South Korea Monitoring corporate performance by institutional investors is encouraged
Thailand - All the financial and corporate information should be disclosed. - All the connected transactions are disclosed.
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Comparison of corporate governance in East Asian
Economies (IX)

• Board meetings (I)

Hong Kong Full board meeting - No less than every 6 months - Involve matters with conflict of interest
Japan Not discussed
Malaysia - Meet regularly and prepare minutes - Disclose number of meetings held per year and details of attendance
Singapore - Meet regularly
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Comparison of corporate governance in East Asian
Economies (X)

• Board meetings (II)

South Korea At least once every 3 months Follow the Board Operating Regulation Independent directors - collect and review all related information - listen to the opinion of the shareholders
Thailand Company secretary is appointed - ensure compliance with the relevant laws and regulations - prepare the minutes
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Comparison of corporate governance in East Asian
Economies (XI)

• Disclosure on directors remuneration

Hong Kong Disclosed in full
Japan Decided by the board Disclosed as business statements and evaluated by shareholders
Malaysia - Disclose a formal and transparent policy - Report in detail
Singapore Disclose a clear remuneration policy Disclose the remuneration of all directors and top 5 earning executives in detail
South Korea - Disclosed in full - Fair evaluation
Thailand Disclosed in full
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Comparison of corporate governance in East Asian
Economies (XII)

• Corporate governance disclosure (I)

Hong Kong A statement of compliance with the Code of Best Practice from 31st December, 1995 onwards
Japan Wide disclosure, e.g. policy statements, environment-related reports
Malaysia - Comply with the Best Practice - Performance is reviewed by nominating committee - Disclose the board structure and advisers, details of the board meetings and audit committee meetings
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Comparison of corporate governance in East Asian
Economies (XIII)

• Corporate governance disclosure (II)

Singapore Chairman ensures compliance with company guidelines on corporate governance Detail information of directors and board committee Assessment of the board performance and effectiveness, and contribution of each directors
South Korea Disclose information of the nominated directors to the shareholders Explanation for any deviation from the Code Disclose detailed information on shareholding of controlling shareholders
Thailand Comply with Code of Corporate Conduct and Code of Ethics Statement of the responsibilities of the directors
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Comparison of corporate governance in East Asian
Economies (XIV)

• Accuracy of information disclosure (I)

Hong Kong Every director is responsible for the accuracy of information disclosed
Japan Not discussed
Malaysia External auditors report independently according to statutory and professional requirements - covers financial/ operational/ compliance controls and risk management
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Comparison of corporate governance in East Asian
Economies (XV)

• Accuracy of information disclosure (II)

Singapore Independent internal auditors Meet the international standard Audit committee reviews the evaluation of the internal controls by the internal/ external auditors
South Korea Audit committee and auditors are responsible for the accuracy of financial reports
Thailand Directors are responsible for the accuracy of financial reports, minutes and all document regarding to the board
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Comparison of corporate governance in East Asian
Economies (XVI)

• Shareholders voting rights

Hong Kong Not discussed
Japan Election of directors
Malaysia Election of directors
Singapore Not discussed
South Korea Election of directors Right of profit apportion/ attendance of board meeting/
Thailand A list of certain decisions made by the board require the shareholders approval, e.g. amendments to Memorandum of Association/ Articles of Association, capital changes, etc.
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Recent development of corporate governance in
East Asian Economies (I)

• Hong Kong
• Amendments to Companies Ordinance
• Minority shareholders rights
• Voting rights
• Rules for company annual meetings and
  accessibility to corporate records by shareholders

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Recent development of corporate governance in
East Asian Economies (II)

• Malaysia
• All directors and company advisers are
  responsible for violations of rules regarding to
  director liability, financial reporting,
  disclosure and investor protection from June 1,
  2001.
• Disclose the responsibility of directors in
  internal controls in annual reports
• Transform from the rule-based to the
  disclosure-based regulatory framework

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Recent development of corporate governance in
East Asian Economies (III)

• Singapore
• New Securities and Futures Act
• Listed companies will be charged for violation of
  disclosure regulations, in either civil or
  criminal penalty
• Publish the first corporate governance code in
  April 2001
• Disclosure of executive and director remuneration
  
• Board composition (IDs 1/3 of board)
• Audit committee (All IDs)
• Fair and Equitable information disclosure
• Include the corporate governance practices in
  annual reports from January 2003

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Recent development of corporate governance in
East Asian Economies (IV)

• China
• Proposed rules on pre-listing corporate
  restructuring and corporate governance structure
• Separation from parent companies on operations,
  assets, and structure
• From 2002, listed firms publish quarterly
  financial reports starting

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• THE END