Hong Kong Won't Force Quarterly Reporting On Companies

by Mary Swire, Tax-News.com, Hong Kong

21 January 2003

Changes to the regime for listed companies in Hong Kong have been watered down from the original proposals in a final document being submitted by Hong Kong Exchanges & Clearing to the Securities and Futures Commission for approval.

Mainboard listed companies were to have been forced to report quarterly, to report the remuneration of individual directors by name, and to have at least a third of directors appointed independently. But as a result of strong lobbying from some major companies, the changes are simply being added to HKEx's Code of Practice, which has only advisory status.

The listing rule changes will become effective in the first half of this year, subject to approval by the Securities and Futures Commission. Companies will be encouraged to disclose how much individual directors were paid by name, but would be forced only to disclose payment without names, said HKEx. Companies will have to increase the minimum number of independent directors on their boards from two to three.

Karen Lee Kit-ying, head of HKEx listing, regulation and risk management, denied that HKEx had backed down, saying it had listened to market demand. She said the original proposals could become compulsory in the end: "The European Union plans to ask their companies to carry out quarterly reporting in 2005. We will study whether Hong Kong should do the same," she said.

Herbert Hui Ho-ming, deputy chairman of the Hong Kong Institute of Directors, welcomed the changes, saying they reflected market concerns, and is against the imposition of quarterly reporting 'whether it is 2005 or 10 years later'.

Investor groups had previously said they were unimpressed with the Exchange's decision, arguing that by failing to adopt more stringent disclosure proposals, Hong Kong could find itself lagging behind other major financial centres.

'Making quarterly reporting voluntary is making no change at all,' shareholders' rights advocate, David Webb complained to the Hong Kong Standard. 'It has always been voluntary. I think this is another example of the tycoons holding back the development of corporate governance in Hong Kong.'

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