ASIAN CORPORATE GOVERNANCE
ASSOCIATION (ACGA)
“Recent developments in corporate
governance in Asia.”
Presentation by Jamie Allen, Secretary General, ACGA
to
The Third Asian Roundtable on Corporate Governance
OECD/World Bank/ADB
Singapore
April 4, 2001
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© ACGA Ltd
A common view on Asia
“My impression is that the prospects for
CG are rather gloomy, that it will take a
long, long time (decades) and right now
all these activists and forums are just
working on the form but not the
substance. Where do you stand?”
-- A question recently asked of me by a
foreign journalist in Asia.
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Two questions

Where have substantive changes or
improvements occurred in Asia in recent
years?

How can we facilitate the creation of
substance in addition to form?
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Competition for capital

Listed companies becoming more transparent
– Improved disclosure among international companies (HSBC,
Infosys) and local/regional companies (CLP Holdings, Kerry
Properties, Good Morning Securities, DBS Bank).
– Study after study indicates a clear demand from institutional
investors for better financial data, improved auditing, and
more board independence.

Private companies restructuring their boards
– Preparing for IPOs.
– In response to demands of a new private equity investor.
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Partially privatised state enterprises (?)
Technology start-ups/second boards (?)
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Behaviour of intermediaries

Growing interest among investment banks,
brokers, and analysts in the commercial
relevance of corporate governance:
– Goldman Sachs: “Asia Restructuring Scorecard”, a quarterly
survey that includes corporate governance.
– CLSA: Began ranking Asian companies in October 2000.
– S&P: Developing a new company rating service.

Expansion into Asia of US and European
consultancies:
– Proxy voting/advisory: Institutional Shareholder Services
(ISS), Investor Responsibility Research Center (IRRC).
– Company surveys: Deminor.
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Voting of shares

Japan:
– Pension funds are starting to vote their shares following years
of poor returns from companies. Participation is becoming a
necessity.

Korea:
– Elections of outside directors are being contested. Eg, PSPD
nominated a candidate for a seat on the board of Samsung
Electronics in March 2001. They garnered 16.07% of the vote.
Although most support came from foreign institutional
investors, it was significant that several large Korean public
pension funds also backed the PSPD. All private Korean
institutional investors, except one, supported management.
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Shareholder action

Korea:
– People’s Solidarity for Participatory Democracy (PSPD)

Malaysia:
– Malaysian Investors Association (MIA)

Singapore:
– Securities Investors Association (Singapore)

Hong Kong:
– Proposed HK Association of Minority Shareholders (HAMS)

Litigation:
– Malaysia: Palmco, a listed oleochemicals maker.

Marking down shares:
– UBS Warburg: Market cap of certain Malaysian companies
fell significantly due anti-minority proposals in last two years.
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Educational infrastructure

New training programmes:
– For accountants, directors, company secretaries, internal
auditors, lawyers and investment analysts.
– Being offered by private training firms.
– Being undertaken by corporations for their staff.

New organisations:
– Institutes of Directors: Singapore, Thailand, Philippines,
Indonesia. Revamped in Hong Kong.
– Non-profit organizations: Indonesian Institute for Corporate
Governance, Malaysian Institute of Corporate Governance.
– Academic centres: Asian Institute of Management, City
University of HK, Chinese University of HK (planned).

New networks
– Institutes of Directors of East Asia Network (IDEA.Net)
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Better quality information

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Media reporting: more nuanced (eg, SCMP in Hong Kong)
Conference materials: OECD, APEC, ADB, Shanghai
Stock Exchange

Professional journals/magazines:
– Corporate Governance International (CGI), Company
Secretary magazine, Hong Kong Society of Accountants
magazine
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Webb-site.com
ACGA regional report and articles
Japan Investment Forum (www.japaninvest.com)
International newsletters
– Global Proxy Watch (US)
– Governance (UK)
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2nd question
How can we facilitate the creation of
substance in addition to form?
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Focus on the banking sector too

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Banks are a neglected element in much discussion of corporate
governance in Asia, yet clearly they have a role to play in
influencing the vast majority of (unlisted) companies.
Banks may face competitive limitations in promoting corporate
governance to their borrowers, but could start by improving their
own governance standards.
This probably needs to be done as a group, and initially under
the guidance of a regulator. For example:
Hong Kong Monetary Authority new guidelines, May 2000:
– The board should ensure that the bank properly manages risk (8
types of risk are specified).
– The board should ensure that provisions on connected lending are
fully understood, and the bank sets a policy on such lending.
– The board should receive the external auditor’s management letter,
with comments from management.
– Higher number of independent directors (3), + possibility of more.
– Etc
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Public-private partnerships
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Few would dispute there was a need for greater investor
involvement in corporate governance reform in Asia. Yet costs
continue to outweigh the benefits for most funds.
A useful interim mechanism may be programme partnerships
between private groups and public bodies, such as:
– Research into strengths and weaknesses of local
governance regimes, especially as they affect different types
of companies.
– Plain-language summaries of governance rules confusingly
spread across company and securities laws, various
regulations, listing rules, and codes of best practice.
– Joint training programmes among officials, directors, etc.
– Joint litigation (in extreme cases, as in Taiwan).
The assumption here is that governments will remain the main
drivers of governance reform for some time, hence it makes
sense to work with them in “strategic” ways.
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Examine procedural rules
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Most government effort in Asia in recent years has been
focussed on developing new codes of best practice, amending
laws and listing rules, and drawing up new policies.
But it is also important to ensure that procedural rules do not
stymie the exercise of minority shareholder rights--either by
making it too difficult, too expensive or too risky.
Issues to consider:
– Simpler mechanisms for derivative suits.
– Class-action suits with contingency fees.
– Lowering arbitrary limits on the right of minority shareholders
to call a meeting, nominate a director, file a shareholder
proposal, and so on.
– Methods of voting at annual meetings (eg, the show-ofhands vote).
Taiwan has evolved a unique solution: “simulated class action”
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Balance quantity with quality

Much corporate governance discussion focusses
on increasing the:
– Number of independent directors and independent board
committees;
– Fees paid to independent directors;
– Space devoted to corporate governance in annual reports
and other public documents.

All of this is important, but:
– What is the use of more independent directors if they are of
poor quality? Ditto for board committees.
– What is the point of more words in annual reports if the
language is largely formulaic or full of jargon?

Quality may count for more.
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Where I stand
“My impression is that the prospects for CG are
rather good (over the medium to long term),
that it will take a long time (two decades), and
right now we are all still working on the
foundations. But progress is rarely linear or
evenly paced: reform will go forwards and
backwards, and periods of apparent inaction
could be followed by bursts of activity
following external shocks.”
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