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SFST's speech


Following is the speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Enterprise Governance Forum 2003 today (November 26):

Distinguished Guests, Ladies and Gentlemen,

It is both an honour and a pleasure to be invited to deliver the keynote address for the Enterprise Governance Forum 2003 this afternoon. I am delighted to share with you my views on this new governance framework. My special thanks to the Chartered Institute of Management Accountants (CIMA) Hong Kong Division and the Securities and Futures Commission (SFC) for providing me with this golden opportunity.

Over the years, both the CIMA and the SFC have made tremendous contributions to the development of the financial services industry in Hong Kong. The former provides continuous support to its members all over the world by offering useful insight on how to relate the professional discipline of accountancy to the real business world. The latter, the SFC, has a special responsibility for driving home the messages of good corporate governance, accountability and transparency, and for both promulgating and ensuring the adoption of appropriate practices.

The Enterprise Governance Forum today is the first of its kind in the world. It provides a platform that enables speakers and delegates to exchange ideas and experience, as well as to explore the way forward in implementing Enterprise Governance in Hong Kong.

The financial services industry is one of the key pillars of the Hong Kong economy. It is our mission to maintain and enhance Hong Kong's competitiveness as a leading international financial and capital formation centre in the region. We cannot be complacent. We must be on the alert for the rapid developments around us. And I believe the new framework, Enterprise Governance, which is being explored in this forum, can help provide an environment for sustainable growth of our economy.

I am sure all of you are familiar with the term "Corporate Governance". It is a hot topic these days all around the world and much good work has been done on the subject. Almost all financial markets in the world aspire to improve their corporate governance standards. What, then, is the difference between "Corporate Governance" and "Enterprise Governance"? How can Enterprise Governance help Hong Kong improve its financial services industry?

Several very knowledgeable speakers have already given us useful insight into the concept of Enterprise Governance this morning. Allow me to say why I believe the concept is important for Hong Kong. Allow me also to share with you how I think the various market players can contribute to ensuring its wider application.

Enterprise Governance


The concept of Enterprise Governance is wider than Corporate Governance. Enterprise Governance provides the comprehensive framework that co-ordinates all management activities including Corporate Governance. Enterprise Governance considers the whole picture of an organisation to ensure that strategic goals are aligned and good management is achieved. This "totality" concept is important in the sense that if the goals are not aligned properly and the company is mismanaged, it would lead to inefficiencies and could result in corporate failure.

Hence Enterprise Governance embraces all the key players of a company, be they directors, accountants, managers, investors or other stakeholders.

The role of directors in promoting Enterprise Governance is obvious. Directors are responsible for the management and operation of the company. Directors, both collectively and individually, are expected to fulfil their duties to a standard at least commensurate with the minimum standard established by Hong Kong Law. More than that, we expect directors to demonstrate total integrity and to operate the company to a high ethical standard.

To enhance the quality of directors, the SFC, the HKEx and the Hong Kong Institute of Directors have made substantial efforts in the training of directors over the years. As a further step forward, the relevant authorities are considering the possibility of introducing mandatory training for new directors. Our target is for all new directors to be fully conversant with their duties and obligations to the company as well as the investors from the day they take up the job.

On the regulatory front, our legislation empowers the Court to disqualify persons as directors of a company on grounds such as fraud and unfitness. The first 10 months of this year alone, some 39 persons have been disqualified, on the application of the Official Receiver, to serve as directors. And the average disqualification period is around four years. These figures are indicative of our determination to deter malpractice on the part of company directors. However, I would like to emphasise that we, I mean the Administration and the regulators, cannot legislate ethics and integrity. We look to the directors for making concerted efforts to maintain a high ethical standard in discharging their duties.

Apart from directors, accountants are another key player on the roadmap of good enterprise governance. As Arthur Levitt, former chairman of the Securities and Exchange Commission in the United States, once remarked, "accountants are private-sector actors with a public role to play". The fall of Enron and Worldcom demonstrated this point very well. The damage is not confined to those corporations that fail. Their impact spills over to the market as a whole, undermining investor confidence domestically and overseas. Accountants have a clear fiduciary duty to the shareholders and other stakeholders for the quality and integrity of financial statements. It is therefore vitally important that we ensure an effective, transparent and accountable regulatory regime for the auditing profession, in line with the best international standards.

I am happy to say that the Hong Kong Society of Accountants has responded positively to my call to further enhance the regulatory regime for the accounting profession. They have proposed measures to improve transparency and accountability by increasing the proportion of independent members in the Council. More than this, the Society has suggested the setting up of an Independent Investigation Board for overseeing the profession and handling of complaints in respect of suspected accounting, or auditing irregularities committed by professional accountants in relation to listed companies. As you may be aware, we have issued a public consultation paper regarding the proposal in September this year. Comments received so far indicate general support for the establishment of the Independent Investigation Board, but views are diverse regarding the source of funding and how it should be set up. We are now examining the comments and will take a decision on the way forward shortly.

I come now to investors. On the one hand, investors have a responsibility to learn and to understand their rights, such as the rights of attending general meetings and exercising their voting power. Such rights are entirely in the hands of the investors. They have a responsibility to exercise them. Government's role and responsibility in this regard is to encourage investors, through publicity campaigns and public education, to be more active in exercising their rights. On the other hand, the Government also recognises the need for enhancing investors' right in case of unfair prejudice. We have submitted a bill to the Legislative Council to amend the ordinance so as to put more effective remedies in shareholders' hands, and to enable them to secure information possessed by companies after obtaining approval from the court.



Enterprise Governance is a new and evolving concept, but it is clearly a useful tool which should help us set our objective and to map out our strategies for getting there. So I would like to conclude this speech by sharing with you how we could raise the standard of Enterprise Governance of Hong Kong corporations. The answer lies in the word "proactive".

First, Hong Kong needs to be proactive in exploring ways to leverage Enterprise Governance in order to enhance shareholder value and to provide better protection to investors. Forums of this nature should enable more market players to be engaged in the discussion of this important topic.

Second, we need to be proactive in capturing the unique opportunity open to us as the key capital market for Mainland companies. In particular, we need to grab the golden opportunity under CEPA to increase our market share in the Mainland before other countries go into this huge market under the WTO arrangements.

Third, we need to be proactive in contributing to the research, promotion and implementation of Enterprise Governance concepts. We need to develop techniques and tools to help companies to identify the right strategies having regard to their objectives. I am thankful to the CIMA and SFC for their hard work on this important subject. I would urge that they continue with the good work.

Ladies and gentlemen, good Enterprise Governance is of vital importance to enhancing shareholder value and maintaining investors' confidence in a key financial market like Hong Kong. We need to be the leader rather than the follower in promoting such ideas and concepts. The Government pledges its support to ensuring a level playing field and publicising good corporate practices. It is up to you, as market participants, to play your part so as to ensure that Hong Kong sustains its status as a major business and international financial centre in the years to come. Let us join our efforts to make sure this works. Thank you very much.

Ends/Wednesday, November 26, 2003


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