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Following is the speech by the Chief Secretary for Administration, Mr Donald Tsang, at the opening of the "Corporate Governance for the New Generation" Study Programme cum Youth summit this (March 1) morning (English only):
Mr Moses Cheng, Commissioner Lee, distinguished guests, ladies and gentlemen,
I am delighted to join you this morning to talk about corporate governance. This summit is very special, because it is not targeted at the corporate leaders of today - it is targeted at the corporate leaders of tomorrow.
We have with us students from Hong Kong, the Mainland of China, Macau and Singapore. May I extend my warmest wishes to all participants, in particular our guests from outside Hong Kong. The organisers have put together a top-notch programme that I am sure you will find both useful and interesting. It is certainly our wish that you walk away after this summit with a greater appreciation of the need for transparent, accountable and ethical management in both the public and private sectors.
Good corporate governance has always been important to the smooth functioning of markets and the society. But it was not until the Asian financial crisis in 1997 that we may have taken our eyes off the ball during the heady and prosperous days of the early 1990s. Various factors led to the contagion that swept across our region - lax and weak supervision, excessive debt levels, corrupt lending policies and non-market criteria for credit allocation to name just a few. And with the benefit of 20-20 hindsight, we can see that the main culprits were a lack of effective corporate governance, a lack of transparency and a lack of proper risk assessment.
Some markets in Asia suffered more than others like Hong Kong and Singapore, which had in place well-developed market infrastructure for some time. Hong Kong was still hit hard by the fallout of the crisis. But mitigating those effects were relatively strong corporate governance mechanisms such as open and transparent markets, a stable political environment, top-rate professional supporting services and a proactive regulatory framework. The crisis also showed us that we need to do more to strengthen our regulatory framework if we were to prevent a repeat of the 1997 and 1998 meltdown.
Recent corporate scandals in the US involving Enron and World Com have once again propelled the issues of corporate governance to the forefront of media and public attention. The commercial fallout of these scandals sent jitters around the globe. At the same time there was unprecedented scrutiny of the accounting and auditing practices adopted by some very large corporations, as well as the roles and powers of regulators. Tougher laws, tighter financial frameworks and a clear separation of accounting and auditing services were put forward as amulets against deceit and greed. Back in the boardrooms, enhanced transparency, accountability and personal integrity became the mantras of responsible capitalism. Clearly, the systems that had been in place were not adequate enough. But fortunately this has prompted quick action to address these shortcomings, both in the US and here in Asia.
The need for commonly accepted global standards has never been greater. Globalisation means that markets from Africa to Asia to America are becoming more inter-dependent, and more sophisticated. As a result, companies and security markets are competing even more fiercely for capital allocation. One of the factors investors look at more closely now than ever, is the underlying regulatory quality of these markets.
The Global Investor Opinion Survey 2002, published by McKinsey, found that foreign investors were willing to pay a premium of up to 30% for companies with good corporate governance. Why? Because a commitment to proper corporate governance is a sign of a commitment to quality. During periods of volatility, funds are often moved to quality markets with open and transparent investment regimes. And, as the Asian financial crisis showed us, once investors lose confidence in a particular market, liquidity is sucked out of that market at an alarming rate thanks to the advent of modern information technology. So, high levels of corporate governance are needed for markets not just to compete, but to survive.
As one of the world's most important financial centres, Hong Kong has long emphasised the vital importance of good corporate governance to maintaining our financial stability and competitiveness. Our aim is to establish Hong Kong as a paragon of corporate governance, ensuring that investments in Hong Kong comply with the highest international standards, including those related to risk management and disclosure of information.
Over the past decades, the government has worked hard to maintain critical elements of our success as an international financial and trade centre - these include the rule of law upheld by an independent judiciary, a clean government, a level playing field for business and the free flow of information.
We have also maintained a sound regulatory framework and taken a proactive approach to promote good corporate governance through legislation. For instance, our Standing Committee on Company Law Reform has issued Phase I recommendations on corporate governance, which closely match those being undertaken in the UK. We consulted widely before changing our Listing Rules to bring corporate governance standards in line with other major markets. And last year, our legislature passed an omnibus Securities and Futures Bill that will put our regulatory regime on par with the best international standards.
All these initiatives help sustain and enhance the quality of our market. Indeed, Hong Kong's regulatory environment and corporate governance structure have been recognised as a great strength. Investment company CLSA (Credit Lyonnais Securities Asia) ranked Hong Kong and Singapore as markets with the highest levels of corporate governance in Asia in its 2002 Survey on Corporate Governance in Emerging Markets.
Our accounting and auditing standards also match world benchmarks. The hosting by the Hong Kong Society of Accountants of the World Congress of Accountants in November last year demonstrated the profession's determination to meet the challenges thrown up by a more globalised world.
All of these efforts by both the government and market players are being recognized. Recent surveys and studies by international agencies such as Standard & Poor's and the Political and Economic Risk Consultancy have rated Hong Kong as a leader of corporate governance in Asia. 'Euromoney' magazine has also rated a number of Hong Kong companies as amongst the best in Asia.
CFO's of companies in Asia have also become more aware of the need for good corporate governance in the wake of the US corporate scandals last year. A survey on Attitudes to Corporate Governance in China and South East Asia by the Association of Chartered Certified Accountants last year found over 60% of CFOs in the Mainland, Singapore and Hong Kong had increased their awareness of the need for good corporate governance, while 60% of boards had taken action to review the corporate governance systems of their particular companies.
Governments throughout Asia have also implemented new rules and regulations to maintain an effective regulatory discipline. In the Mainland and Singapore, continuous efforts have been made by policy-makers to address issues such as independent directors, timeliness, fairness and sufficiency of disclosures and conflicts of interests of auditors. All these initiatives have been designed to sustain a level playing field and to minimise market misconduct.
With all of this hard work, the outlook for Hong Kong and our neighbours is promising. However, we cannot afford to be complacent. Even with a world-class regulatory regime, greed and deceit always manage to rear their ugly heads. The best corporate governance regimes can fail if our business chiefs and managers are more concerned about their own bank balances rather than the interests of other stakeholders such as shareholders and employees. At the end of the day, the most important element of good corporate governance is the discipline and ethics of our corporate leaders. Our business leaders have a duty not only to observe minimal regulatory standards, but to nurture a corporate culture that embraces high standards of honesty, accountability and professional ethics.
With the values of honesty and ethics deeply entrenched, a corporation can then better protect the interests of all stakeholders - shareholders, staff, business associates and consumers alike. Managers and staff trained in such an environment will find it easier to ward off temptations when faced with an ethical dilemma. By raising the integrity standards of all stakeholders, the ultimate objective of corporate governance can be achieved - creating sustainable values and wealth.
The world is now at a stage when the momentum of economic growth in the region is beginning to gather pace, especially after the Mainland's entry into the WTO. The Hong Kong SAR Government has also laid out a road map to boost economic co-operation with our hinterland, the Pearl River Delta. More prospects and opportunities are bound to open up in Hong Kong and its neighbours. To sharpen our competitive edge, Hong Kong and other cities in Asia must pool our strengths. There will be greater co-operation in areas such as technological and infrastructure development, and in improving the flows of people, goods and capital. But, we should also aim to build on our greatest strength - our human capital - and groom a new generation of world-class corporate leaders.
The world-class leaders of tomorrow will need more than knowledge and ability. They will need to be honest, accountable, prudent stewards of their companies. They will need to be an anchor, as well as a driving force, for maintaining a highly self-disciplined culture of good corporate governance in the workplace.
As the youth of today and the future leaders of Asia, you are tasked with this important mission. It is up to you to abide by the disciplines of corporate governance and to embrace and display high standards of personal ethics. Your actions will be the propelling force of tomorrow's world. It is up to you to set a personal example of what accountable and professional behaviour is all about. It is up to you to adhere to the highest standards of personal ethics. In a rapidly changing world, in a world that is getting closer day by day, the future prosperity and vibrancy of Asia rests on your shoulders. I know you can make it.
Ladies and gentlemen, before I finish, I would like to thank all of those who have helped bring this summit to fruition - the ICAC, the Commission on Youth, the Committee on the Promotion of Civic Education, the Hong Kong United Youth Association Limited and the Hong Kong Institute of Directors. I must also thank the Hong Kong Society of Accountants, the Corporate Governance Development Fund, Cathay Pacific Airways Ltd and all of the tertiary institutions in Hong Kong, the Mainland, Macau and Singapore that have so actively supported this initiative.
I am sure this summit will be a monumental success.
Thank you very much.
End/Saturday, March 1, 2003
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