Following is the speech by the Permanent Secretary for Financial Services and the Treasury (Financial Services), Mr Tony Miller, at the Launch of Directors of the Year Awards 2004 organised by the Hong Kong Institute of Directors today (June 2) (English only):
Herbert [Hui], ladies and gentlemen,
First, thank you Herbert for inviting me to witness the launch of the Directors of the Year Award 2004. I am delighted to have this opportunity to pay tribute to you and your colleagues in the Hong Kong Institute of Directors for all that you have done to promote good corporate governance, both through the various programmes you organise and by personal example. In this context, the Directors of the Year Award has been a very successful event in promoting quality governance by according recognition to outstanding company directors.
I see the rundown for this afternoon's launch allows me only three to four minutes to speak on a subject, which demands rather longer to do it proper justice. So I will try and compress my messages under three simple headings:
- the importance of good corporate governance;
- the changing landscape of our market; and
- the transition from SME to publicly listed company.
The Importance of Good Corporate Governance
After Enron, Worldcom, Parmalat and that whole recent litany of corporate moral failure, does anyone really need convincing of the need for refresher classes in corporate ethics? I say ethics because there is a limit beyond which legislation cannot go in governing human behaviour. Hong Kong is already recognised as regional leader in corporate governance. We have a light but effective legislative framework, independent regulators, and an independent judiciary. Our standards are set deliberately to match those of the world's foremost financial centres, but as we have seen they too have had their problems. That is not an argument for more and tougher laws, rather it is a reminder that corporate culture must be driven by the example of corporate leaders themselves and by the cultivation of standards of both understanding and behaviour through proper training.
The Changing Landscape of our Market
Ten years ago, while Hong Kong might have made some claim to being an international banking centre, our equity market was basically domestic and dominated by the property sector. Today, Mainland firms account for 26% of listed companies by number; 29% by market capitalisation and fully 50% by average daily turnover. So the last decade has seen a radical change in the landscape and that change is continuing.
These new entrants to our market come not just in search of new capital, nor just for the higher international profile. They come also for the international "Q" Mark. Before they secure a listing on the Hong Kong exchange they know that they will be subject to the scrutiny of accountants, lawyers and other professionals and advisers with international experience and international standing. Listing here means compliance with best international practice.
The Transition from SME to Publicly Listed Company
Hong Kong has always boasted of the strength of its small and medium-sized enterprises. That is no idle boast. It is the small and medium-sized industries which are the seed-beds of new products and new business ideas. They provide enormous flexibility and they have traditionally provided a disproportionately large percentage of employment. Since China's opening up, more and more of our entrepreneurs have started operations north of the boundary. Many have been remarkably successful and no longer qualify for the description "small or medium". They have become very large and, quite naturally, as they consider plans for further expansion, they look to the Hong Kong market.
This transition from private SME to publicly listed company is a huge step and demands a change of mind-set on the part of the board. Risking one's own capital is very different from being entrusted with other peoples' money. It brings with it new responsibilities and obligations. So I was delighted not so long ago to be present for the launch of the Hong Kong Institute of Director's handbook on corporate governance for SME's. The fact that this book has become a best-seller speaks volumes for the ambitions of our entrepreneurs and their sense of corporate responsibility. Again, I compliment the Institute on its far-sightedness.
Going the Extra Mile
Ladies and gentlemen, the more general point behind these contextual remarks is this: Hong Kong needs to build up a bigger pool of qualified and experienced directors and we cannot do that without provision for training.
Directors are responsible for managing the affairs and activities of a company. They are entrusted with both capital and power by shareholders in exchange for which they take on both legal obligations and moral responsibilities. Directors, both individually and collectively, have to fulfil both statutory and fiduciary duties. The panel of judges to select the outstanding directors of this year are very familiar with these, so allow me just to summarise them here in simple form:
- First, directors have a duty to act in good faith for the benefit of the company as a whole. Directors owe a duty to act in the interests of all its shareholders, and not just their own;
- Second, directors have a duty to use their powers for a proper purpose for the benefit of shareholders as a whole. They may not exercise their powers in any way, which departs from purposes for which they were conferred.
- Third, directors have a duty to exercise due care, skill and diligence.
All of which presupposes that directors have a clear understanding of the laws of the jurisdiction in which they serve, the rules of the market and the obligations incumbent on them as directors.
The Hong Kong Institute of Directors, since its establishment in 1996, 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 Institute organises programmes specially designed for SME directors. There are also programmes, which place emphasis on listing rules and courses on the role of listed company directors, all of which are very useful for new directors and directors-to-be. I trust that responsible company chairmen will require their directors to take such training courses.
The international trend is towards ensuring that all directors receive appropriate training on first appointment and that resources are made available for developing and refreshing both knowledge and skills thereafter. While there is no mandatory provision in our Companies Ordinance, under the draft Code on Corporate Governance Practices of the Listing Rules of our stock exchange, every newly appointed director of an issuer should receive an induction on first appointment. Any variation on this practice must be disclosed and continuous professional development has been accepted as best practice. The target implementation date for this is January 2005.
That is a step in the right direction and essentially mirrors best practice elsewhere. The question is how much further should we go. So far only one country, Malaysia, has made directors' training a mandatory requirement. Every director of a listed company there must undergo continuous training and penalties will also be imposed for non-compliance.
As one of its initiatives to strengthen training for directors, the Administration has asked the Securities and Futures Commission (SFC) and the Hong Kong Exchanges and Clearing Limited (HKEx) to review present arrangements. Specifically, we have asked that they consider whether training should be made mandatory for new directors of listed companies, and whether existing directors should be required to attend training on a continuous basis to keep themselves abreast of the latest developments like the changes to the Listing Rules. I have no doubt that the Institute will make its views known as well.
Finally, I would like to take this opportunity to encourage all of you to participate in the Directors of the Year Awards. Nominate the outstanding directors that you know so that their performance could be recognised by their counterparts. It is this sort of peer recognition which gives directors the incentive to excel.
Ends/Wednesday, June 2, 2004