Hong Kong Needs to Do More to Achieve Corporate Governance Excellence

CLP Holdings Ltd., Standard Chartered and China Shenhua Energy Company Ltd. won the top awards in their respective categories in this year's Best Corporate Governance Disclosure Awards organised by the Hong Kong Institute of CPAs, but judges withheld top awards in two categories, saying there is room for Hong Kong listed companies to improve their corporate governance and disclosures.

 

In the competitive H-share category, where China Shenhua Energy Co. Ltd. took the top award, there were more first-time winners this year than in previous years, which Stephen Law, chairman of the organising committee, attributes partly to better awareness of corporate social responsibility among these companies.

 

Other H-share winners were the Industrial and Commercial Bank of China Ltd., which won the next highest award, the platinum, while first-time winners China Telecom Corporation Ltd. and China Life Insurance Co. Ltd. took the gold award and a special mention respectively.

 

The top prizes were withheld in the non-Hang Seng Index mid-to-small market capitalisation and the public sector categories.

 

Last year, the committee introduced the non-HSI mid-to-small market capitalisation category to identify good role models among smaller companies. 

 

One past award winner, Ta Yang Group Holdings Ltd., invested more effort over the past year to win the second highest award, the platinum, this year.  A fresh entrant, CIMC Enric Holdings Ltd. won the gold award.

 

“The separation of non-HSI companies into two categories based on the companies’ market capitalisation helped to encourage smaller listed companies that have established good corporate governance practices," says Law. "This shows that size and resources should not be considered barriers to achieving high standards.”

 

"This year the awards are celebrating their 10th anniversary," explains Wilson Fung, the Institute’s president and chairman of the judging panel, "A number of companies have been consistent winners over this period. This shows their commitment to maintaining best practices even as regulations and community and market expectations change over time."

 

Fung adds, “We are also encouraged to see a number of new contenders and award winners clearly improving their reporting and governance structures. This is the whole objective of the awards. Since the competition was launched, there have been over forty different award winners.”

 

In the Hang Seng Index category, CLP Holdings won the top award for the eighth successive year, with Hong Kong Exchanges and Clearing and HSBC Holdings coming up next. The judges acknowledged CLP Holdings for maintaining a consistently high-quality governance culture, and setting a good example for a family-controlled business.

 

In the non-HSI large market capitalisation category, Standard Chartered, Transport International Holdings Ltd., and Hysan Development Co. Ltd. won the diamond, platinum and gold awards respectively.

 

The annual report of the Airport Authority Hong Kong won an award for the tenth consecutive year in the public sector and not-for-profit category taking the platinum award this year. The Mandatory Provident Fund Schemes Authority was a first-time winner in this category, gaining the gold award and the Securities and Futures Commission received a special mention.

 

This year, more than 220 annual reports were reviewed.

 

Companies with better corporate governance benchmarked their performance explicitly and extensively against the provisions and recommended best practices of the Code of Corporate Governance Practices issued by Hong Kong’s stock exchange.

 

More companies disclosed the remuneration of senior management by name and made improvements in disclosure of risk management and internal control reviews. Corporate social responsibility and environmental reporting was also better this year.

 

However, the judges recommended more formal evaluation of board and board committees’ performance, better explanations of how board members are chosen, particularly in the public sector, and on emolument policies, and more details about the implementation side of risk management and internal control, especially for smaller companies. They also urged more disclosure about how related party transactions are approved and a balanced discussion on performance and the future outlook for the business. Early reporting is also strongly recommended.

 

The judges noted that the standard of corporate social responsibility reporting is improving with more companies providing dedicated sections in their annual reports, and separate booklets or online reports. The best companies have independent or third-party assurance for these reports.

 

However, the judges mentioned they look forward to a wider acceptance of the value of disclosures on CSR and sustainability issues by businesses, especially those which have a big impact on the environment and the local community.

 

 

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