HKIoD Corporate Governance Scorecard Project

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HKIoD Corporate Governance Scorecard Project
Organized by

• Sponsored by
• Corporate Governance
• Development Foundation
• Executed by
• CityU's research team led by Prof Stephen Cheung,
• Professor (Chair) of Finance

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Research Committee

• Coordinator
• Prof. Stephen Y L Cheung (City University of Hong
  Kong)
• Members
• Dr. J. Thomas Connelly (Chulalongkorn
  University)
• Dr. Piman Limpaphayom (Chulalongkorn University)
• Ms. Ping Jiang (City University of Hong Kong)
• Research Assistants
• Mr. Andy Lau (City University of Hong Kong)
• Mr. Chung Cheong Wing (City University of Hong
  Kong)
• Mr. Ho Ka Ho (City University of Hong Kong)
• Ms. Jan Chan (City University of Hong Kong)
• Ms. Louise Zhang (City University of Hong Kong)
• Mr. Patrick Tsang (City University of Hong Kong)

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Research Methodologies I

• Survey results based on publicly available
  information
• HSI, HSHKCI, HSCCI, and HSCEI constituent stocks
• Based on information disclosed in 2005
• 174 major companies are covered

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Surveyed Companies I (as at 12/2005)
Air china (753) CHALCO (2600) China Power (2380) CITIC Resources (1205)
Allied Group (373) Chen Hsong Hldgs (57) China Res Land (1109) CKI Hldgs (1038)
Angang Newsteel (347) Cheung Kong (1) China Res Logic (1193) CLP Hldgs (2)
Anhui Conch (914) China COSCO (1919) China Res Power (836) CNAC (1110)
ASM Pacific (522) China East Air (670) China Resources (291) CNOOC (883)
Bank of E Asia (23) China EB Ltd (165) China Shenhua (1088) CNPC (Hong Kong) (135)
Bankcomm (3328) China Insurance (966) China Ship Dev(1138) COFCO Intl (506)
Beijing Airport (694) China Life (2628) China South Air (1055) COSCO Pacific (1199)
Beijing Ent (392) China Mer Hldgs (144) China Telecom (728) CR Peoplesphone (331)
BOC Hong Kong (2388) China Mobile (941) China Travel (308) CSCL (2866)
Brilliance Ent (1114) China Netcom (906) China Unicom (762) Dan sing (440)
BYD Co (1211) China Oilfield (2883) Chinese Est H (127) Dan Sing Banking (2356)
Café de Coral H (341) China Oversea (688) CIFH (183) Datang Power (991)
Cathay Pac Air (293) China Pharma (1093) CITIC Pacific (267) Denway Motors (203)
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Surveyed Companies II (as at 12/2005)
Dynasty Wines (828) GZI Transport (1052) Huadian Power (1071) K. Wah Int'l (173)
Esprit Holdings (330) HAECO (44) Huaneng Power (902) Kerry Ppt (683)
FE Consort Intl (35) Hang Lung Group (10) Hutch Harb Ring (715) Kingway Brew (124)
FIH (2038) Hang Lung Ppt (101) Hutch Telecom (2332) Kowloon Dev (34)
First Pacific (142) Hang Seng Bank (11) Hutchison (13) LCH Bank (1111)
Fong's Ind (641) Henderson Inv (97) Hysan Dev (14) Lenovo Group (992)
Fountain Set (420) Henderson Land (12) i-Cable Comm (1097) Li Fung (494)
Fubon BK (HK) (636) HK China Gas (3) ICBC (Asia) (349) Lifestyle Intl (1212)
Giordano Int'l (709) HKS Hotels (45) IDT Int'l (167) Liu Chong Hing (194)
Glorious Sun (393) HK Electric (6) JCG Holdings (626) Luen Thai (311)
Great Eagle H (41) HK Ferry (Hldgs) (50) Jiangsu Express (177) Maanshan Iron (323)
Guangdong Inv (270) HKEx (388) Jiangxi Copper (358) Melco Intl Dev (200)
Guangshen Rail (525) HKR Int'l (480) Johnson Elec H (179) Miramar Hotel (71)
Guangzhou Inv (123) Hopewell Hold (54) K M Bus Hold (62) MTR Corporation (66)
Guoco Group (53) HSBC Holdings (5) K Wah Cons (27) New World Dev (17)
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Surveyed Companies III(as at 12/2005)














Next Media (282) Shanghai Ind H (363) Solomon Systech (2878) Vitasoy Int'l (345)
NWS Hldgs (659) Shanghai Pechem (338) Swire Pacific A (19) Vtech Holdings (303)
OOIL (316) Shangri-la Asia (69) Swire Pacific B (87) Weiqiao Textile (2698)
Oriental Press (18) Shenzhen Express (548) TCL Int'l Hold (1070) Wharf Holdings (4)
Pac Century Ins (65) Shenzhen Int'l (152) Techtronic Ind (669) Wheelock (20)
Pacific Basic (2343) Shenzhen Invest (604) Texwinca Hold (321) Wheelock Prop (49)
PCCW (8) SHK Ppt (16) Tianjin Dev (882) Wing Hang Bank (302)
PCPD (432) Shui On Cons (983) Titan Petrochem (1192) Wing Lung Bank (96)
PetroChina (857) Shun Tak Hold (242) TPV Technology (903) Yanzhou Coal (1171)
PICC PC (2328) Singamas Cont (716) Travelsky Tech (696) Yizheng Chem (1033)
Ping An (2318) Sino Hotel (1221) Truly Int'l (732) Yue Yuen Ind (551)
Regal Intl (78) Sino Land (83) Tsingtao Brew (168) Zhejiang Express (576)
SaSa Int'l (178) Sinopec Corp (386) TVB (511) Zijin Mining (2899)
SCMP Group (583) Sinotrans (598) Varitronix Intl (710)
SH Electric (2727) Smartone Tele (315) Vedan Intl (2317)
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Objectives of Corporate Scorecard for Hong Kong
Listed Companies
Our objective
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Research Methodologies II

• Avoids subjectivity bias
• Not dependent on companies willingness
• Written request was sent to individual companies.
  Only a few companies supplied us with full
  information

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Consistency

• Each company was rated by two different research
  assistants
• The overall results were cross-checked by the
  research team

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Scorecard Followed The Five OECD Corporate
Governance Principle
OECD principle Number of questions sub-questions
Rights of shareholders 22
Equity of shareholders 13
Role of stakeholders 9
Disclosure and transparency 32
Board responsibilities 45
121

• OECD is internationally recognized
• HKEx guidelines comprehensively covered
• 174 public companies surveyed

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Positive Correlation between Corporate Governance
Index and Company Valuation
Market to Book Ratio
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Market Valuation by Corporate Governance Score
Quartile
2005 Market to Book Ratio vs CGI Ranking
Market to Book Ratio
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Improvement of CGI by Sections
Section/ Year 2005 Mean 2002 Mean
A 71.47 53.42
B 71.01 75.90
C 40.21 54.32
D 89.47 62.34
E 69.50 45.81
CGI 70.87 61.02
CGI increase by percentage 16.14
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Improvement of CGI Compared with 2002
Improvement Frequency
-6-0 10
0-5 23
5-10 40
10-15 36
15-20 18
gt20 6






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Corporate Governance Performance by Indices
HSCCI (??????????) HSCEI (????????) HSI (????)
HSHKCI (????????)
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Corporate Governance Performance by Industries
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Corporate Governance Performance by Categories
A Rights of Shareholders (?????) B Equitable
Treatment of Shareholders (????????) C Role of
Stakeholders in Corporate Governance
(?????????????????) D Disclosure and
Transparency (??????) E Board Responsibilities
(??????)
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Rights of Shareholders (?????)

• Improvements
• Improve the quality of Notice to Call for
  Shareholders Meeting
• Attendance of all Board members, Esp. Board
  Committee Chairs

92.63
71.47
49.19
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B. Equitable Treatment of Shareholders(???????? )

• Improvements
• Increase influence of minority shareholders to
  the Board
• To use cumulative voting in the election of board
  members
• To facilitate voting by proxy

95.16
71.01
51.61
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C. Role of Stakeholders in Corporate
Governance(?????????????????)

• Improvements
• Disclose more details on the role of
  supplier/business partner
• Give more details on the environmental issues in
  its public communication

95.71
40.21
8.1
21
D. Disclosure and Transparency(?????? )

• Improvements
• The information in websites
• Shareholding structure
• Organizational structure
• To disclose the managements shareholding
• Communication with public
• Analyst briefing (s)
• Press conference (s)/ press briefing

98.77
89.47
72.71
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E. Board Responsibilities(?????? )

• Improvements
• Separate the role of the chairman and CEO
• A set of writing the code of ethics
• Setting up the Nomination Committee
• Role and responsibilities
• Performance and meeting

98.99
69.50
31.18
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Results

• NOT finger-pointing exercise
• Important input for policy-makers, companies, and
  the public
• Score for individual companies will not be made
  public

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Top 10 Highest CGI Scored Companies (by
alphabetical order)

• BOC Hong Kong (2388)
• CLP Hldgs (2)
• HKEX (388)
• HSBC Hldgs (5)
• Hang Seng Bank (11)
• Hysan Development (14)
• Li Fung (494)
• MTR Corporation (66)
• Shenzhen Express (548)
• Solomon Systech (2878)

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• END