Sunday, May 6, 2018

Johnstone & Goo Report on Improving Corporate Governance in Hong Kong (HKICPA)

May 2018, 705 pp
Introduction (Executive Summary)
Hong Kong’s emergence as a global financial centre has brought far greater attention to its role in the global market place and the standards it engages as compared to other leading global centres. Markets compete on a range of factors, amongst which the corporate governance (CG) system is of particular importance because it impacts on market integrity, and hence market success. Where the affairs of publicly listed companies are undertaken in a way that fall short of expected CG standards, or where the mechanisms of control and redress are inadequate to curb misbehaviour, confidence in the market may be damaged, and the market becomes less efficient. CG is therefore an integral part of a market that a CG system must serve. 
     This Report was commissioned by the Hong Kong Institute of Certified Public Accountants (HKICPA) to make recommendations on how Hong Kong’s CG system may be further developed to improve the long-term competitiveness of the Hong Kong public market. The recommendations are to be based on an independent, comparative study of shareholder rights, remedies and protections and board processes within the context of public listed companies. As many listed issuers are not incorporated in Hong Kong this presents special issues as regards standard setting and enforcement. 
     To assess the strengths and weaknesses of Hong Kong’s CG system in the global context, this study investigated the CG system in Hong Kong and each of the United Kingdom (UK), the United States, Mainland China and Singapore. The CG system in each of these jurisdictions has undergone developments and experiences, successes and failures that are shaped by its historical, political, legal, market, and social and cultural contexts. The different influences of these factors are important to recognize for the purposes of forming recommendations within a Hong Kong framework – what works, or fails, in one jurisdiction might fail, or work, in another. 
     The comparative analysis undertaken in this Report has led to a total of 28 recommendations being put forward. Reflecting one of the guiding concepts of this study to produce practical and implementable recommendations, only two require a change to legislation, with another four possibly requiring legislative change subject to the outcome of a further consultative process. All recommendations are consistent with overarching objectives of fostering competition and regulatory efficiency. 
     The remainder of this Part I of the Executive Summary provides an overview of the study’s main findings. Part II outlines each recommendation made and provides a summary Table of all recommendations found in Section 4 of this Report. Part III summarizes the approach taken to the topic of CG and the formation of recommendations. Part IV summarizes the analysis that gives rise to the 28 recommendations via an abridged text of the detailed analysis found in Section 3 of this Report...
     For media coverage of this Report, see SCMP and CFO Innovations. To download the full report, click here.

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