HONG KONG

By Jaja Aguas

The second quarter saw institutional investors in Hong Kong getting a big boost following the election of investor representatives, Oscar Wong Sai Hung and David Michael Webb, to the board of the Hong Kong Exchanges and Clearing Ltd. (HKEx), which owns and operates the stock exchange, futures exchange, and their related clearing houses in Hong Kong.

Wong is the chief executive of fund management firm BOCI-Prudential Asset Management Ltd. Webb is the editor of Webb-site.com, a non-profit publication he established in 1998 to promote better corporate governance and further shareholders’ rights in Hong Kong. The board nominated Wong together with six incumbent directors while Webb and two others were shareholder nominees. Both men made it to the board after a contested election of 10 nominees was held for only six director positions at the company’s AGM on April 15, 2003.

HKEx’ board, prior to the AGM, comprised 15 directors, eight of whom were appointed by the Hong Kong government, while six were elected prior to the company’s initial listing in 2000. The chief executive also sat on the board. After the AGM, the number of director appointees to the board will be reduced from eight to six thereby cutting the total number of board members to 13.

As all incumbent directors had affiliations with brokerage houses and investment banks, the outcome of the company’s first director election was much awaited by listed companies and investors alike.

Election results were based on net votes for each candidate whereby votes cast against each candidate were subtracted from the number of votes in favor. Candidates were then ranked according to net positive votes. Those with more negative votes than positive were disqualified. Five out of 10 candidates were qualified to occupy directorship positions with Wong scoring the highest and Webb the fourth. The resulting vacancy will be filled by board appointment.

Over the years, the HKEx has been put under close scrutiny and criticized for failing to address investor concerns and initiate reforms that would improve inefficiencies and elevate corporate governance standards and practices in the market. One such concern is the delay in the deregulation of Hong Kong’s commission rates. The liberalization of commission fees was first announced in May 2000 and was scheduled to take effect in two years, after which the 0.25 percent minimum commission fee would be removed. The implementation was delayed for an entire year due to objections from stockbrokers, and was just recently put into effect.

Another defect that calls for reform is Hong Kong’s wide-spread table that sets the minimum gap between the bid and offer prices in the market. Such wide spread makes it difficult for buyers to find sellers in the market. As a result, brokers and investment banks gain by buying at the best bid and selling at the best offer at the expense of investors who are left with the option of either accepting a low offer or holding on to their shares.

Given the background of majority of HKEx’ board members, the inclusion of Wong and Webb marks a significant improvement in having shareholder representation on the company’s board. Ultimately, this favorable outcome is a step towards increasing investor confidence by protecting investor interests and initiating reforms that could resolve inefficiencies and improve corporate governance standards and practices in Hong Kong.