Corporate Reform in East Asia

Prof. Stephen Y.L. CheungDepartment of Economics & Finance

City University of Hong Kong

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

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

Priorities in promoting corporate governance in East Asia (III)

DisclosureTimely and sufficient financial disclosureAdopt an international standard accountingNon-financial disclosureCorporate governance/ ethical/ social

issues

Better risk management

Priorities in promoting corporate governance in East Asia (IV)

ShareholdersStrengthen minority shareholder protectionEducate the public shareholdersExercise their rights

Encourage participation of institutional and shareholders in monitoring performance

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

Malaysia

Singapore

South Korea

Thailand Age, background, qualification

Comparison of corporate governance in East Asian Economies (II)Separation of chairman and CEO

Hong Kong Not discussed

Japan Dual roles are allowed with explanationMalaysia

Singapore Dual roles are NOT allowed

South Korea Not discussed

Thailand Not discussed

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

Singapore

South Korea

Thailand No less than 5

Comparison of corporate governance in East Asian Economies (IV)Independent directors (IDs)

Hong Kong No max. / min. is set

Japan

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

Comparison of corporate governance in East Asian Economies (V)Remuneration reviewHong Kong Not discussed

Japan Remuneration committee

Malaysia Executive directors’ links with corporate/ individual performance

IDs’ reflects level of responsibilitiesSingapore

South Korea Fair evaluation

Thailand In accordance with Articles of Association

Comparison of corporate governance in East Asian Economies (VI)Assessment of board performance

Hong Kong Not discussed directly

Japan

Malaysia Nominating committee

Singapore

South Korea Fair evaluation

Thailand Not discussed

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

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.

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

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

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

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

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

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

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

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.

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

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

MalaysiaAll 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

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

SingaporeNew 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

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

ChinaProposed 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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