Following is the speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Corporate Social Responsibility (CSR) Workshop organised by the British Consulate-General today (February 24) (English only):
CSR and the Knowledge Based Economy
Stephen [Bradley], distinguished guests, ladies and gentlemen,
I feel honoured to be invited to address you today. We are all here to explore the concept of CSR. Although the concept is relatively new, it is one which warrants our further thoughts. In a survey of the 1,500 business leaders attending the World Economic Forum in Davos this year, just 5% named CSR as the single most important criterion of corporate success. Although an additional 24% said that the reputation and integrity of the brand matter most, social responsibility does not seem to be a main consideration when talking about how to conduct businesses. I do not and cannot subscribe to the view that a company is responsible to its shareholders, but not to society. It is not right to say that corporate governance which seeks to protect shareholders and investors is legitimately a priority of the company, while CSR, which is about doing society good is only a secondary, if relevant consideration.
To me, CSR and Corporate Governance are complementary. A successful corporation is one which excels in both aspects. Let me first talk about Corporate Governance. As you know, my bureau leads on corporate governance - a key dimension of good business practice that has increasingly attracted the attention of the global community, not least because of high-profile corporate scandals over the course of the last couple of years: Enron, Worldcom, and more recently Parmalat are names which still haunt our minds.
Corporate governance is, as I see it, a vital element for the success of CSR. Corporate governance is vital because without good corporate governance, people quickly lose faith in the market place. This loss of faith was no doubt a contributory factor to the plunge of worldwide stock markets over the course of the last couple of years and the rise of the anti-globalisation agenda. The alternative, but equally unproductive scenario, is when over-regulation restricts access to funding opportunities.
Either scenario brings about the same result, to a greater or lesser degree. Without investment, economic growth stagnates and contracts. On the micro-level this means that employment does not keep pace with rising populations, or worse still, lay-offs. Undoubtedly, either would quickly translate into rising welfare claims and higher taxes. Something which we in Hong Kong are keen to avoid.
As Hong Kong seeks to cement its position as an international financial centre along the lines of London and New York, it is vital that we continue to focus our attention on improving corporate governance practices. A lot has already been done. Let me briefly take you through the key gains already made.
First, our new Securities and Futures Ordinance (SFO) was rolled out in April 2003. This has moved us firmly into a disclosure-based regime. The dual-filing arrangements give the Securities and Futures Commission (SFC) teeth for digging into those who file false or misleading information with the HKEx and the SFC. Expanded powers also enable SFC to act on misconduct in a more timely and effective manner.
Second, the Hong Kong Exchange and Clearing Limited (HKEx) has streamlined its process in ways which improve quality control at the point of entry by focusing on critical matters. As some of you may have noticed, we have been consulting on further refinements to the listing arrangements. We are now analysing submissions received and will revert to the Legislative Council in April with the consultation conclusions, a road map and a timetable.
Thirdly, the Standing Committee on Company Law Reform (Standing Committee) released its Final Recommendations on Phase II of its Corporate Governance Review to the Government last month. All of its Phase I recommendations relating to shareholders' rights are already translated into law. We will consider quickly how best to take forward the new recommendations in consultation with the relevant parties.
Last, but by no means least, the Administration is acutely aware of the need to have an effective, transparent and accountable regulatory regime for the accounting profession. The local profession has just completed work on a Private Member's Bill, which will put us in line with international developments. In addition, we will shortly announce proposals for the setting up of an Independent Investigation Board (IIB) and a Financial Reporting Review Panel (FRRP).
A clean market place invites trade. I am pleased to see that both the Hang Seng and the H share index have increased dramatically over the course of the last six months. But we should not be complacent, rather I am very committed to continuing to improve Hong Kong's regulatory environment.
However, this is not just a story about investor returns. It is about the wealth of society and the global community as a whole. Share prices do, after all, reflect expectations of future growth and it is my job, together with our regulators, to ensure that companies' reporting practices accurately reflect developments in the real world. Equally it is about enabling an environment which provides decent companies with the opportunity to raise funds in the capital markets.
For the future, I would like to see the role of financial services in Hong Kong's economy expanding further. We are certainly well placed to ensure that this happens. The development of RMB business and the accelerating stream of mainland related IPOs are good indicators of our booming economy. In order to capitalise on the opportunities available to us, not just in financial services, but in all sectors of the economy, we need to move our people up the value added chain, to further increase employment opportunities, thereby narrowing the gap between the rich and the poor.
In order to promote economic restructuring and establish a knowledge-based economy, Hong Kong invests substantially in education to lift the competitiveness of our labour force. About one quarter of Government spending goes on education. In 2002, we launched the $5 billion Continuing Education Fund to help promote life-long learning. Our Open University is a large and self-sustaining success. In pursuit of continuing education, many people eagerly enrol themselves in courses there and in the extra-mural programmes of other universities. Secondary school graduates are provided with a variety of different avenues for further studies.
In the transition to a knowledge-based economy, we need to strengthen training and retraining. There is a Youth Pre-employment Training Programme providing comprehensive pre-employment training to young school leavers. As the Chief Executive has announced in this year's Policy Address, we will set up an inter-departmental and inter-disciplinary task force to be responsible for overseeing the implementation of various youth training and employment programmes.
Governments clearly have a role to play and CSR should not be about relinquishing responsibility. It is about enabling and encouraging the market to take the lead. It is also about mainstreaming guidance and best practice and encouraging sustainable investment. It is up to us to incentivise transparent reporting on sustainability; to guard against both under and over-regulation. The Government also has a role to play in rolling out CSR and good corporate governance as a whole to the small and medium enterprises (SME) community. Thus, we should not just focus on listed companies and ignore the development of unlisted companies. This is in line with the Standing Committee's recommendation on its Phase II Corporate Governance Review, which calls for the improvement of the regulation of unlisted companies as well. As the Principal Official for both Financial Services and the Treasury, I welcome constructive suggestions in all of these areas.
I am glad to see so many leading figures from the business community, from academia and from the third sector here today, including Community Business and the Association for Sustainable and Responsible Investment in Asia who have all made tremendous contribution to today's workshop. I am glad that so many of you care and that you are ready to move beyond caring, beyond mere charitable acts and to look to capitalise on the market incentives of CSR of which there are many. Some Hong Kong companies are already strongly committed to CSR and Corporate Governance. For examples, companies such as the CLP, HSBC, Standard Chartered, Li & Fung and Kerry Properties had won awards in Corporate Governance in 2003. I hope more will follow suit. Just to echo what the Financial Secretary has said recently, sustainability is not a threat to business, not a gimmick, and not just short-term profits, it's about long-term viability.
As Hong Kong seeks to transform itself into a knowledge-based economy, CSR should be seen not so much as a cost, but as a tool through which companies can increase their value-added by focusing on risk, reputation and competitiveness. Nowhere is this more valid than in our business relationships with the Mainland. Whether we are talking about supply chain management, construction or financial services, CSR can help us to capitalise on business opportunities.
I am very pleased to see UK and Hong Kong businesses joining hands to share experience of CSR, and in particular to look at why it makes good business sense. We share a need to support and deliver economic growth that benefits all, from those who manage businesses to those who own them, from consumers and individual citizens to local communities. Understanding what making good money means is a prerequisite for a successful and sustainable approach to economic growth.
Although today's conference is close to its end, I am confident that together we have moved the CSR agenda forward and that we will continue to do so. I welcome the initiative of the British Consulate General in taking the lead to organise today's workshop, which I am sure will generate further discussion on the subject by the community. I look forward to seeing more corporations follow the good example of practising CSR. I for one am committed to creating the right sort of enabling environment for the market. And good business is what Hong Kong is all about.
CSR must become part and parcel of a company's objectives. I strongly believe that CSR can benefit Hong Kong by maintaining its prestigious status and sustaining its economic growth in the years to come. Let me wish you all every success in pursuing the CSR goals. I hope I have not put all of you to sleep. Thank you.
Ends/Tuesday, February 24, 2004