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Following is the speech by the Financial Secretary, Mr John C Tsang, at the 7th Anniversary Celebration of the Hong Kong Chamber of Listed Companies cum Hong Kong Corporate Governance Excellence Awards Gala Dinner at Conrad Hong Kong this evening (December 2):
K.S. (Chairman KS Lo), Distinguished Guests, Ladies and Gentlemen,
Good evening. I am delighted to join you all today.
It is my great pleasure to celebrate the 7th Anniversary of the Hong Kong Chamber of Listed Companies, and to congratulate everyone involved in tonight's Hong Kong Corporate Governance Excellence Awards ceremony.
It has been said that global market forces will sort out those companies that do not have sound corporate governance (Mervyn King - The King Report [South Africa]).
The big time American investor Warren Buffet put it another way when he said, and I quote: "Only when the tide goes out do you discover who's been swimming naked."
Looking around this room, I'm pleased to see that we are still all suitably attired.
This time last year, the economic tide in Hong Kong was well and truly out. Our economy went into recession, the stock market was almost two-thirds below its record high a year earlier, and companies were being squeezed by the global credit crunch.
I am pleased to say that our economy is in much better shape today. We emerged from recession in the second quarter of this year with 3.3 per cent GDP growth compared to the first quarter. There was further improvement in the third quarter of this year. Our stock market is back above the 20 000-point mark, and retail sales registered a year-on-year increase in September after falling for seven consecutive months.
At the same time, recent events in Dubai have highlighted the potential dangers and the massive uncertainties that lie ahead in the recovery process. This is not the time to be complacent. Instead, it is the time for us to reaffirm our commitment to good corporate governance and to bolster our institutional strengths.
The building blocks of our status as an international business and financial centre are enshrined in the rule of law, our mature legal system, clean and efficient government, low and simple tax system and robust regulatory regime.
These Awards tonight also highlight our culture of good corporate governance in the business community.
Corporate governance has become a cornerstone of listed companies in the last decade or so, and crucial to maintaining our financial stability and competitiveness.
Good corporate governance is not an optional extra for companies, but an essential element in attracting investment and stimulating economic growth. It is also one of the core attributes of our capital formation platform. By listing in Hong Kong, companies including Mainland enterprises, have to demonstrate high standards of corporate governance on a par with their Hong Kong peers. In return, this strengthens their credibility factor among international investors.
Our aim is to encourage a high degree of transparency and corporate honesty. As a global financial centre, we have a moral obligation to meet international standards in terms of risk management and disclosure of information.
The Government, together with our regulators strives to promote good corporate governance practice, through the maintenance of a fair, transparent and orderly market. Our courts take a firm line on insider trading, and the ICAC remains a world leader in tackling fraud and corruption.
We also count on the support and partnership of the industry in enhancing our corporate governance standards.
A key tool in promoting good corporate governance is the Stock Exchange of Hong Kong's promulgation of the Code on Corporate Governance Practices. Listed companies are now required to disclose in their interim and annual reports whether they have complied with each code provision. And, where a listed company deviates from a code provision, it must give reasons in its report.
In its analysis this year, the HKEx noted an improvement in corporate governance compliance. The HKEx found that 98 per cent of 1 200 listed companies complied with at least 41 of the 45 code provisions. This compliance rate is up from 96 per cent the previous year.
The 2009 Hong Kong Institute of Directors Corporate Governance Score-card also found a slight improvement in the quality of corporate governance practices last year compared to 2007.
These results are encouraging, but there is always room for improvement.
I encourage more companies to adopt the best practices in corporate governance. This is a way to improve your company's transparency, credibility and attractiveness to investors - especially to overseas and institutional investors.
In 2007, we established the Financial Reporting Council, as a direct response to the Enron and Worldcom cases. The aim is to strengthen the oversight of the accounting profession and the quality of financial reporting. As a statutory body, the Council is empowered to investigate accounting and auditing irregularities of listed companies.
Another important exercise under way is the rewriting of the Companies Ordinance. Our objective is to provide Hong Kong with a modern legal infrastructure attuned to our needs in the 21st Century. Apart from modernising our company law to facilitate business operation and cost savings, the new Companies Bill aims to enhance corporate governance.
The new Bill will codify the standard of directors' duty of care, skill and diligence. This will help to clarify directors' duties in law and provide consistent guidance to directors. It will also provide auditors with qualified privilege for statements made in the course of their duties. In addition, it will give auditors the right to require information from a wider group of people. We intend to launch a two-part public consultation on the new Companies Bill starting this month.
High standard corporate governance underpins the attractiveness of Hong Kong's listing platform. To strengthen our listing regime, we are establishing a continuous disclosure culture among listed companies. We intend to launch a new round of the consultation exercise later this month on the legislative proposals to codify certain disclosure requirements on price sensitive information. This is an important exercise, and it will no doubt generate a great deal of discussion in the community.
Effective disclosure involves timely and accurate communication to investors on the latest developments or changes within a company which may impact on its share price. This is important for investors to make informed decisions on their investments and is part of our disclosure-based regulatory regime.
The majority of our listed corporations are already complying with the continuous disclosure requirements under the Listing Rules. But the reputation of our equity market and, more generally, our status as an international financial centre can best be sustained by ongoing improvements to our listing regime.
By creating a positive statutory obligation to disclose price sensitive information in a timely manner, we can demonstrate to the market our commitment to enhancing market transparency and quality. Overseas jurisdictions such as the UK, Australia and Singapore have also provided statutory backing to their listing rules. Our proposed codification will bring our regime on a par with those in other jurisdictions.
We want to find the right balance between enhancing the quality and reputation of our equity market, while at the same time encouraging market innovation and development.
Here, we need input from you, the key stakeholders in good corporate governance.
Sanctions may be a concern to listed companies so measures need to be appropriate, effective and clearly articulated. In consultation with the Securities and Futures Commission and the Exchange, we are designing a range of proportionate sanctions. This will avoid inadvertently penalising the law-abiding majority or imposing severe penalties for minor breaches. Above all, any sanctions would need to provide a suitable deterrent effect.
At the same time, we are considering appropriate ways to provide sufficient clarity to listed companies on when a statutory disclosure obligation would arise. I hope that you will take some time to consider our proposals, when they are released. We welcome all your comments.
We also count on your support in nurturing an enhanced disclosure culture and sustaining our regional leadership in corporate governance. The Hong Kong Corporate Governance Excellence Awards instituted by the Chamber and the Hong Kong Baptist University reinforces these efforts. I would like to thank the Chamber and the Baptist University for organising this important annual event. It demonstrates the community's strong commitment in advocating excellence in corporate governance.
I would also like to congratulate the winners of this year's Awards. By demonstrating your best practices to your peers, you are helping to develop a strong corporate governance culture among listed companies.
Ladies and Gentlemen, the great thinker Albert Einstein had a sign on his office door in Princeton, USA that read, quote: "Not everything that counts can be counted, and not everything that can be counted counts."
I look forward to continued support from the community of listed companies, in pursuing something that really does count, a strong corporate governance culture. This will help to ensure that none of our companies are caught swimming naked when the tide goes out.
Thank you.
Ends/Wednesday, December 2, 2009
Issued at HKT 21:03
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