Cracks in HK corporate governance

Corporate governance (CG) standards in Hong Kong are lagging behind arch rival Singapore due to the lack of a clear government strategy, and also a regulatory regime to supervise the financial auditors, according to a research conducted by the Asian Corporate Governance Association (ACGA).

Produced in cooperation with CLSA Asia-Pacific Markets (CLSA), the ACGA survey interviewed 864 listed companies across Asia-Pacific markets to gauge the regional CG standard. The survey evaluated the CG standard based on five criteria: CG rules and practices, enforcement, political and regulatory factors, financial audit standard and CG culture.

The survey showed that Singapore's CG standard has edged up 2 points higher to 69 points in total accrediting the city-state's CG system to remain in the top spot in 2012, followed by Hong Kong which also moved marginally up 1 point higher to 66 points in total in the survey.

Singapore is particularly strong in CG rules and practices and has formulated regulatory regimes to supervise independent auditors.

"The Singaporean government has been focusing greater attention on CG reforms in the past two years leading to improved regulations and regulatory enforcement," ACGA Secretary General Jamie Allen said in the Wednesday press conference. "Retail investors in Singapore are also showing more engagement to supervise the CG standard of listed firms."

"Another Singapore's competitive edge in CG is that the city-state has set the benchmark for the independent regulation of auditors. Hong Kong lags behind (in) this (respect) as the city generally lacks the regulatory regime to supervise independent auditors that hinder local firms to produce speedy and quality financial reports," Allen said, adding that tycoon influence remains excessive in Hong Kong.

In other aspects of the ranking, Singapore and Hong Kong scored marks in political and regulatory factors as well as in CG culture, while Hong Kong is ahead of Singapore in terms of regulatory enforcement.

Allen highlighted that both Hong Kong and Singapore lacked world-class CG systems as both cities have had their share of corporate scandals, frauds, and conflicted initial public offering processes.

The share prices of mainland firms listed in Hong Kong have plunged sharply earlier due to the research reports conducted by US securities research firm Muddy Waters that criticized these mainland companies' CG standard.

Billy Mak, a finance professor at the Baptist University of Hong Kong, begged to differ from ACGA views, saying that the ranking of Hong Kong should be understood in the local context.

"Most of the listed companies in Hong Kong come from the mainland so that these listed firms and regulatory authorities need to deploy more resources to do their CG work. For Singapore, most of the listed enterprises come mainly from the city-state so that their conduct of CG work can be done much easier;" Mak told China Daily.

"Hong Kong's CG standard is already fairly good," Mak added. "Of course there is still room for improvement and whether improvement should be made depends on how listed companies regard the benefits of raised CG standards versus the costs involved."