Mainland SOEs top in corporate governance study

HK-listed firms show great strides in fair and transparent corporate practice

The corporate governance performance of Hong Kong-listed companies has improved significantly over the past few years, with large State-owned mainland Chinese companies fetching the highest mark in the index for accessing fair and transparent corporate practices, according to a study by Hong Kong Institute of Directors, or HKIOD.

Average scores of 121 major companies listed in the city in terms of corporate governance, covering rights of shareholders, equitable treatments of shareholders, role of shareholders, disclosure and transparency, as well as board responsibilities based on the Organization for Economic Cooperation and Development's five principles, reached 71.91 out of 100 this year, compared with 71.89 registered in 2009, according to the HKIOD survey.

Information that was made publicly available, including companies' 2011 annual reports, websites as well as other financial statements, were sources investigated by the study.

As the institution had adopted more stringent criteria for the present study, subdividing the five principles into 151 questions compared with only 121 two years ago, the similar outcome in scores actually represented "improvements in overall corporate governance level in Hong Kong," said Stephen Cheung, dean of School of Business from Hong Kong Baptist University, which jointly conducted the survey with HKIOD.

Improvements were seen from various aspects among these Hong Kong-listed companies, including the optimized mechanism to allow minority shareholder's participation in voting procedures, leading to a more transparent corporate governance structure and disclosure of management's shareholdings to the public.

The finance industry leads in the survey with an average score of 78.4, followed by the energy industry that collected 77 to get second place. Other industry segments scored between 68 and 72 on average, according to the survey.

It also found that six of the top 10 firms with the best corporate governance practices in the study were State-owned or backed with funding from the mainland via organisations like the Bank of China, China COSCO, China Life, CNOOC, ICBC, and Lenovo Group.

When the study was first carried out in 2003, mainland enterprises were basically at the bottom of the list in terms of corporate governance, according to Cheung.

In the latest 2012 survey, the performance of the Hang Seng China Enterprises Index (H-shares) that tracks major mainland companies listed in Hong Kong topped the chart in comparison with other indices, including the Hang Seng Index (HSI) and Hang Seng Composite Large Cap Index (HSLI). This means the large State-owned enterprises not only raised funds in the city, but had also devoted time and efforts to improve transparency, as well as clarifying the power and responsibilities of boards of directors as well as to enhance the social responsibilities of these firms, Cheung added.

Besides corporate governance improvements seen among Hong Kong companies over the years, the study also noted that responsibility of those independent non-executive directors were weakened given that many of them played multiple roles.

According to Cheung, an independent non-executive director of a firm was found to be, at the same time, serving in the same capacity for 16 other companies, among the 121 firms interviewed in the survey. How could someone with multiple roles have possibly devoted enough time to help each of the companies to direct and improve their operations, he asked.