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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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