Many Hong Kong SMEs Are Ignoring Corporate Governance Issues
by Mary Swire, Tax-News.com, Hong Kong
24 November 2004

Many of Hong Kong’s smaller firms are not taking the issue of corporate governance seriously enough and as a result may be leaving themselves open to financial ruin, according to a survey conducted by the Hong Kong Baptist University's School of Business.

The survey, entitled 'SME Corporate Governance Practices and Perceptions,' evaluated responses from 196 firms taken during a series of recent corporate governance workshops organised by the Institute for Enterprise Development and Management Research, and uncovered some worrying results.

Some of the key findings of the survey included the revelation that 54% of the SMEs (defined as firms with less than 100 employees or turnover below HK$50 million) did not know that executive directors and non-executive directors incurred the same legal responsibilities, while 59% did not purchase indemnity insurance for their directors.

Meanwhile, 85% of the respondents had no procedures in place to evaluate the performance of directors, and over half were unaware of any clauses in their Articles of Association indemnifying directors in the event that they fail to perform their duties.

“There are many misconceptions as to what companies should be involved in corporate governance,” commented Simon Ho, dean of Hong Kong Baptist University's School of Business.

“They (SMEs) think that corporate governance is only the business of the large listed firms, or large multinational firms,” he added.

Ho observed that the problem was particularly acute amongst family-run businesses where there are often no formal systems in place for the delegation of authority.

He also criticised institutions such as the Hong Kong Institute of Directors and the Securities and Futures Commission for focusing too much on the governance of large and listed companies.

SMEs currently represent 90% of all entities doing business in Hong Kong, totalling some 400,000 firms.