Elements of Code of Corporate Governance: East Asia Perspective

Prof. Stephen Y.L. Cheung Department of Economics & Finance City University of Hong Kong

Code of Corporate Governance (I)

Comments:

Board issues

Separation of the positions of chairman and CEO, especially for the relationship-based family-controlled Asian companies Background and qualification of the independent directors

Code of Corporate Governance (II)

Comments:

Board issues

Election: participation of the institutional investors and public shareholders in any form, e.g. email/ letter

Code of Corporate Governance (III)

Comments:

Board remuneration

Disclose remuneration of each director in the annual report

Disclose details of options granted/ sold to directors

Provide of executive remuneration policy

Code of Corporate Governance (IV)

Comments:

Financial reporting, transparency and audit

Set up audit committee Strengthen risk management Independence of internal auditor/ accountant Inform the authority once discovering the misconduct of the board

Code of Corporate Governance (V)

Comments:

Stakeholders

Strengthen their protection Adequate information disclosure Credit rating system

Duties and responsibilities of the Board (I)

Maximize investors wealth in the long run

Achieve the corporate goal

Determine the strategy and policy for the

firm

Point out the potential risk factors

Duties and responsibilities of the Board (II)

Comply with the rules and regulations, together with the codes of best practice Facilitate the effective communication channel with its institutional investors, stockholders and stakeholders

Duties and responsibilities of the Board (III)

Evaluate the performance and effectiveness of the Board Appoint the senior management

Delegate the power and authority properly, fairly and openly

Importance of the board in corporate governance in East Asia (I)

Legal framework Under-developed Severe corruption Corporate governance Self regulation Inculcate morals and ethics Hold managements accountable

Importance of the board in corporate governance in East Asia (II)

Separation of the positions of chairman of board and chief executive officer

Monitor vs. the monitored Dual roles are common in Asian countries Problems:
Conflict of interests Directors remuneration is not related to the firms performance

Importance of the board in corporate governance in East Asia (III)

Independent directors

Monitor the performance of the managements

Avoid over-investment in non-productive and speculative activities Avoid over-borrowing Reduce corruption

Importance of the board in corporate governance in East Asia (IV) Independent directors

Act in the best interest of the shareholders/

represent the shareholders

Strengthen minority shareholder protection

More transparent operations

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