Corporate governance disclosure in Hong Kong has come a long way but can still be further improved. The listing rules for the Hong Kong stock market are not purely disclosures based but also provide for a range of other investor protection measures. In some cases, these go beyond measures in other markets around the globe. A significant reason why the giant Chinese internet company, Alibaba, decided not to list in Hong Kong was that it would have needed to undergo some re-structuring, as Hong Kong currently does not permit new listings with weighted voting rights (i.e., voting rights that favor certain groups of shareholders, such as founding members of the company looking to retain control after listing without necessarily holding a controlling stake).
Nevertheless, disclosure is a very important part of good governance and one that the Hong Kong Institute of CPAs aimed to encourage when it established the Best Corporate Governance Disclosure Awards in 2000. At that time, the disclosure requirements of the listing rules and the then Code of Best Practice for disclosures were quite limited. The Institute sought to identify companies that led by example and set benchmarks for good corporate governance disclosure in the Hong Kong market. Since that time, the Awards have expanded significantly, with different categories covering Hang Seng Index companies, companies with a large or mid-to-small market capitalization, Mainland China enterprises, and public sector/not-for-profit organizations.
The Awards focus on voluntary disclosures in annual reports in areas of priority for investors and other stakeholders—areas where many companies and organizations could still do better. The expert and experienced judges and reviewers look to identify whether an organization has established an internal culture that encourages good governance and conduct throughout the entity, and has a board and senior management that set the right tone and practice what they preach. They do this not only by taking stock of what is written on the page but also by reading between the lines. Their reviews cover, for example, the quality of risk management and internal control; the effectiveness of board structure and functioning, including the knowledge and backgrounds of independent directors; the openness with which the management discussion and analysis/ business review tells the story of the business, its past performance, and future prospects; the transparency of shareholder and stakeholder communications; and the strength of the entity's commitment to corporate social responsibility.
Recognizing the increasing importance of social responsibility disclosures to the investor and the wider community, a separate category for sustainability and social responsibility (SSR) reporting was introduced in 2011. The SSR award aims to do the same for this vital area of non-financial disclosure and reporting as the main awards have done for good corporate governance disclosure and practices over the past 15 years. The signs are positive as the SSR reporting category has quickly expanded and gained attention from the market and the media.
Since the Awards program began, we have seen marked improvements in corporate governance disclosure in Hong Kong. This is due in part to the development of a more extensive framework of corporate governance-related listing rules and a more comprehensive Corporate Governance Code, which operates on a "comply or explain" basis. It is also the result, in part, of a change in corporate mindsets and culture, brought about by an increase in awareness and understanding of the critical importance of good corporate governance to the long-term interests of the Hong Kong market. Unless the key players in the market are already receptive to change, new rules and regulations are likely to be ignored or applied with a box-ticking mentality. The cultivation of an environment where greater transparency and accountability are demanded and expected, and the progressive raising of the regulatory bar, go hand in hand. This is why, although the specter of the year 2000 millennium bug is long forgotten, the Awards are still going strong.