Elements of Code of Corporate Governance: East Asia Perspective

Prof. Stephen Y.L. CheungProf. Stephen Y.L. Cheung

Department of Economics & FinanceDepartment of Economics & Finance

City University of Hong KongCity University of Hong Kong

Code of Corporate Governance (I)Comments:Comments: BoardBoard issues issues

Separation of the positions of chairman and Separation of the positions of chairman and CEO, especially for the relationship-based CEO, especially for the relationship-based family-controlled Asian companiesfamily-controlled Asian companies

Background and qualification of the Background and qualification of the independent directorsindependent directors

Code of Corporate Governance (II)

Comments:Comments:

BoardBoard issues issues

Election: participation of the institutional Election: participation of the institutional

investors and public shareholders in any form, investors and public shareholders in any form,

e.g. email/ lettere.g. email/ letter

Code of Corporate Governance (III)

Comments:Comments: Board remunerationBoard remuneration

Disclose remuneration of each director in the Disclose remuneration of each director in the annual reportannual report

Disclose details of options granted/ sold to Disclose details of options granted/ sold to directors directors

Provide of executive remuneration policy Provide of executive remuneration policy

Code of Corporate Governance (IV)

Comments:Comments:

Financial reporting, transparency and auditFinancial reporting, transparency and audit Set up audit committee Set up audit committee

Strengthen risk managementStrengthen risk management

Independence of internal auditor/ accountantIndependence of internal auditor/ accountantInform the authority once discovering the Inform the authority once discovering the

misconduct of the boardmisconduct of the board

Code of Corporate Governance (V)Comments:Comments:

StakeholdersStakeholders Strengthen their protectionStrengthen their protection

Adequate information disclosureAdequate information disclosure

Credit rating systemCredit rating system

Duties and responsibilities of the Board (I)

Maximize investors’ wealth in the long runMaximize investors’ wealth in the long run Achieve the corporate goalAchieve the corporate goal

Determine the strategy and policy for the Determine the strategy and policy for the

firmfirm

Point out the potential risk factorsPoint out the potential risk factors

Duties and responsibilities of the Board (II)

Comply with the rules and regulations, Comply with the rules and regulations,

together with the codes of best practicetogether with the codes of best practice

Facilitate the effective communication Facilitate the effective communication

channel with its institutional investors, channel with its institutional investors,

stockholders and stakeholdersstockholders and stakeholders

Duties and responsibilities of the Board (III)

Evaluate the performance and effectiveness Evaluate the performance and effectiveness

of the Boardof the Board

Appoint the senior managementAppoint the senior management

Delegate the power and authority properly, Delegate the power and authority properly,

fairly and openlyfairly and openly

Importance of the board in corporate governance in East Asia (I)

Legal frameworkLegal framework Under-developed Under-developed Severe corruption Severe corruption

Corporate governance Corporate governance Self regulation Self regulation Inculcate morals and ethicsInculcate morals and ethics Hold managements accountableHold managements accountable

Importance of the board in corporate governance in East Asia (II)

Separation of the positions of Separation of the positions of chairman of board and chief executive officerchairman of board and chief executive officer

Monitor vs. the monitoredMonitor vs. the monitored Dual roles are common in Asian countriesDual roles are common in Asian countries Problems:Problems:

Conflict of interestsConflict of interests Directors’ remuneration is not related to the Directors’ remuneration is not related to the

firm’s performancefirm’s performance

Importance of the board in corporate governance in East Asia (III)

Independent directorsIndependent directors Monitor the performance of the Monitor the performance of the

managementsmanagements Avoid over-investment in non-productive and Avoid over-investment in non-productive and

speculative activitiesspeculative activities Avoid over-borrowingAvoid over-borrowing Reduce corruptionReduce corruption

Importance of the board in corporate governance in East Asia (IV)

Independent directorsIndependent directors

Act in the best interest of the shareholders/ Act in the best interest of the shareholders/

represent the shareholdersrepresent the shareholders

Strengthen minority shareholder protectionStrengthen minority shareholder protection

More transparent operationsMore transparent operations

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