Following is the speech (English only) by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the 6th Anniversary Dinner and Presentation of Directors of the Year Awards 2003 today (October 29):
Herbert, distinguished guests, ladies and gentlemen,
I am delighted to be here tonight to address the Hong Kong Institute of Directors and extend my congratulations to all those being honoured as "Directors of the Year 2003". I am particularly happy to witness the achievements of the outstanding directors of Hong Kong's listed and private companies as well as non-profit-distributing organizations, and look forward to working with them in promoting corporate governance in Hong Kong.
Good corporate governance is the key to maintaining the confidence of investors and ensuring the good reputation of our financial market. I would therefore like to share with you this evening what the Government has been doing in promoting good corporate governance, and how you can contribute towards this process.
Earlier this year, together with the Securities and Futures Commission (SFC) and the Hong Kong Exchanges and Clearing Limited (HKEx) I reviewed the measures being taken by various parties to improve corporate governance. We then drew up an Action Plan to identify priority areas, assign ownership and devise a timeframe for implementation of all measures. At the risk of sharpening your appetite, I shall briefly take you through the key measures and progress that have been achieved so far.
First, the Securities and Futures Ordinance was effectively rolled out in April 2003. Two sets of provisions therein are particularly relevant to corporate governance, i.e. dual filing arrangements and enhancement of the SFC's inspection and investigative powers. The former imposes a criminal offence on persons filing false or misleading information with the HKEx and the SFC. The latter vests SFC with necessary powers such as obtaining information from persons relating to listed companies to enable it to act on misconduct more effectively.
Second, following the completion of the Phase I Corporate Governance Review by the Standing Committee on Company Law Reform (Standing Committee), I introduced the Companies (Amendment) Bill 2003 into the Legislative Council in June 2003 to implement those recommendations relating to shareholder remedies such as statutory derivative action in the Review. Consultation on recommendations made in Phase II, relating to different aspects of directorship, shareholders' rights, conflicts of interests, and corporate reporting has just been completed. Taking into account comments received, the Standing Committee will shortly put forward its recommendations to the Government. Implementation of these will, I am sure, represent a major step forward in our corporate governance regime.
Third, consultation on two other important topics is underway. The first focuses on the oversight of auditors and quality of financial reports. Proposals include the establishment of a Financial Reporting Review Panel to examine the financial statements of companies to ensure better compliance with the accounting requirements of the Companies Ordinance. The second relates to proposals for giving statutory backing to certain fundamental listing requirements. Potentially, this will lead to better compliance and more effective enforcement. I look forward to receiving your comments on these proposals.
These proposals are all good, but their focus is on the regulatory side. As we all know, no matter how well written our rules and regulations are, the key factor for good corporate governance is high ethical standards. But we cannot legislate ethics! We must rely on all of you, as responsible Directors, to set this standard in running your company. You are the first line of defence in preventing corporate malpractices.
Directors are entrusted by shareholders with the responsibility and authority for running their companies. Directors are not simply the soul of the companies, but also play a critical role in our corporate governance regime. You can make a lot of difference for your own companies. By your example, you can also make a huge difference to our corporate governance regime.
Boards of directors in Hong Kong generally operate to a high standard. Hong Kong's high corporate governance standing in the region is attributed in no small part to the performance and quality of its directors. No doubt, there are exceptions. I have recently met some directors of listed companies and companies planning to seek listing in Hong Kong, who did not seem to have a clear understanding of even the basic concepts of corporate governance. This worried me and set me thinking about what more must be done in the area of directors' training.
Other comparable jurisdictions are working hard in this area. For example, in the United Kingdom, the Combined Code requires that all listed companies should report how they apply the principle whereby every director should receive appropriate training on the first occasion that he or she is appointed to the board of a listed company, and subsequently as necessary.
In Australia, the Australian Securities and Investments Commission has indicated its preference for the Australian Stock Exchange Listing Requirements to stipulate that companies must indicate their policy towards director education and training and that directors education and training is desirable.
Malaysia is the first, and so far the only, jurisdiction in the world to make directors' training mandatory. Every director of a listed company must undergo continuous training and penalties will also be imposed for non-compliance.
In view of the important role played by directors in corporate governance, I do not have the slightest doubt that more needs to be done, and promptly in this area. Now what are the key issues involved in the provision of directors' training? Let me highlight the three "Cs", i.e. clarity of purpose; flexible contents; and commitment.
First, clarity of purpose. We need to equip directors with knowledge and awareness of their responsibilities and liabilities as directors under their companies' memorandum and articles of association, the need to observe legal and non-legal requirements such as the Companies Ordinance, the Listing Rules, and the concept of corporate governance.
Second, flexible contents. There is no one-size-fits-all training module for all directors. Training programmes need to be tailor-made to suit varying needs of directors in terms of the company's lifecycle, the nature of companies, i.e. listed companies vis-ˆj-vis non-listed companies, etc. More importantly, it has to be provided on a continuous basis rather than only on the initial appointment of directors in order to keep them abreast of the latest development in the area of directorship.
Third, commitment. It is a challenging task for a training institute to provide comprehensive, professional and continuous directors' training in Hong Kong. It has to be done with the support of local professional directors, and its leaders have to dedicate themselves body and soul to the training work.
Where do we stand in this regard? Here, I must record my personal thanks for the efforts made by the Hong Kong Institute of Directors, and the Standing Committee for their outstanding work in the following areas -
* The Hong Kong Institute of Directors, since its establishment in 1997, has been providing directors with comprehensive, professional and continuous training. The contents of the training are tailor-made to suit the needs of directors of different types of companies. For example, the programme "Diploma in SME Directorship" consists of seminars specially designed for SME directors like "Problems of Family Businesses & Using External Advisors" in addition to core seminars such as "The Role of Company Directors". Another program, "Diploma in Listed Company Directorship" puts more emphasis on listing rules and includes seminars like "Accountability, Listing Rules and Compliance, Disclosure and Investor Relation".
* The Institute will soon publish a set of "Corporate Governance Guidelines for SMEs" to help them lay down a good and solid foundation for practising good corporate governance in their businesses.
* The Standing Committee, in its Phase II Corporate Governance Review, has proposed a requirement for listed companies to disclose in their annual reports their arrangements for training directors. It has also drawn up some useful guidelines, which set out general principles on directors' duties including -
(a) Duty to observe the company's memorandum and articles of associations and resolutions;
(b) Duty to act in good faith for the benefit of the company as a whole;
(c) Duty to avoid conflicts between personal interests and interests of the company; and
(d) Liabilities for fraudulent trading.
What next? I have been giving a lot of thoughts to the further development of directors' training. I have talked to SFC and HKEx on the need to strengthen these aspects. In fact both are considering whether it should be made a mandatory requirement for new directors of listed companies to attend training and whether existing directors should attend training on a continuous basis to keep themselves abreast of the latest developments like the changes to the Listing Rules.
I have also talked to your previous and current Chairmen and am very encouraged by their response. I am particularly pleased to learn that the Hong Kong Institute of Directors will consider further enhancing the training programmes, with greater emphasis on the professional knowledge required for performing as directors and continue building up its pool of qualified non-executive directors. By working together and each playing his or her part, I believe we can collectively give new impetus to the important issue of training for Directors.
In the days ahead, I will continue to rely on you, the members of the Hong Kong Institute of Directors, for both support and leadership in our joint endeavour to promote and nurture a community culture of good corporate governance in Hong Kong.
Ends/Wednesday, October 29, 2003