1. Overview of recent corporate governance reforms
A. Recent initiatives
There have been numerous recent changes in Hong Kong in relation to corporate governance matters, extending well beyond legislation and nonbinding codes. The roles of relevant regulators have also been examined and proposed changes made.
As far as legislation is concerned, the most significant change is the introduction of the Securities and Futures Ordinance, which came into force on April 1 2003. The ordinance consolidated and modernized various rules and requirements, as well as: * Introducing a new licensing regime which makes insider dealing a criminal offence; * Introducing detailed provisions on securities misconduct; and * Imposing new disclosure requirements which are probably more extensive than those in various international markets. There have also been various changes and proposed changes to the Companies Ordinance concerning issues such as the regulation of foreign companies, prospectus liability and enhancement of shareholders’ remedies.
Legislation aside, significant changes have also been made to the Hong Kong Listing Rules, most of which came into force on March 31 2004. These changes: * modernize and rationalize the entry requirements for listing applicants; * modernize and rationalize the continuing requirements of listed companies, particularly with respect to connected transactions and modifiable transactions; * require qualitative and quantitative disclosure in relation to accounting and other matters; * provide increased guidance and requirements on directors and their independence; and * extensively amend the Model Code, which governs when directors may deal in the securities of a listed company. Behind all these changes, the regulatory approach and structure are also being examined.
The Stock Exchange of Hong Kong Limited (SEHK) is gradually moving away from pre-vetting to a disclosure-based regime, coupled with enforcement by the Securities and Futures Commission (SFC) in case of non-compliance.
The Securities and Futures Ordinance introduced the concept of dual filing, and requires listing documents and various types of corporate communications to be filed with both the SEHK and the SFC. Dual filing enables the SFC to enforce deliberate or reckless misstatements by investigation and prosecution, where appropriate. B. Special circumstances affecting corporate governance
As in other Asian markets, many Hong Kong issuers are family controlled. It is common to have a controlling shareholder or a group of controlling shareholders in a listed company. For this reason, the regulation of connected transactions is of utmost importance in Hong Kong. Indeed, this was one of the focal areas in the recent changes to the Listing Rules.
Another feature is the predominance of the use of foreign incorporated companies. Companies incorporated in Bermuda or the Cayman Islands are often used as listing vehicles, and the SEHK also permits enterprises incorporated in the People’s Republic of China (PRC) to be listed. One focus of corporate governance reform in Hong Kong is to apply standards across the board on a uniform basis, irrespective (to the extent possible) of the place of incorporation of such companies.
Since the handover of Hong Kong to the PRC in 1997, the Basic Law of Hong Kong has enabled Hong Kong to preserve its pre-1997 laws in most respects, and common law continues to apply to Hong Kong. Hong Kong also has its own Final Court of Appeal and, except in relation to limited matters such as defence and foreign affairs, disputes are subject to final adjudication by the Hong Kong courts.
2. Shareholders’ rights
A. to call meetings and propose resolutions
Members of a Hong Kong company holding not less than 5% of its issued share capital may request that meetings be convened. In relation to foreign companies, the position is governed by...