This year’s Best Corporate Governance Awards results showed that more companies are seeing the benefits of going beyond what is required. Nicky Burridge spoke to the winners about their efforts in building a strong corporate governance regime, and why it’s still not enough
Illustrations by Ester Zirilli
Good corporate governance can be a key driver of long-term value creation for companies, and others. But as the winners of the Hong Kong Institute of Certified Public Accountants Best Corporate Governance Awards 2017 understand, practices of good corporate governance are constantly evolving.
For developer Hang Lung Properties, which received the rst ever Commendation on Internal Control and Risk Management – commendations were established last year – corporate governance is at the heart of its business. CF Kwan, Director, Corporate Communications and Investor Relations at Hang Lung, explains: “Our business philosophy is ‘We do it right’, and this is central to everything we do in the company.”
Hang Lung places a strong emphasis on communicating with its staff through various means, including regular town hall meetings, while it has a whistleblowing system to enable employees to report any incidents of malpractice they encounter. “We spend a lot of time and resources building the culture and the value system. This is very important to the long-term success of the company,” Kwan says.
The company prides itself on exceeding the minimum standards set by the regulator. For example, it holds six, rather than four, board meetings a year, and publishes its annual results within one month after the end of the reporting period, rather than within three months.
But it is constantly looking at how it could do better, and it is currently focused on enterprise risk management and improving its sustainability. “We always want to set a higher bar for ourselves,” Kwan says. He adds that Hang Lung is increasingly looking at how it can have a net positive impact as a company, such as shifting its focus from reducing waste to “upcycling” it, reusing waste to create higher value products.
Another proud moment recently for Hang Lung was its inclusion in the Dow Jones Sustainability Asia/Pacific Index, while it was also invited by the Hong Kong Stock Exchange to assist in producing a training video promoting best practice for directors of listed companies.
Kwan said the criteria of the Institute’s Best Corporate Governance Awards was very helpful in helping the company shape its own policy. “During the dinner, we went through the award brochure and looked at the strengths the judges liked and how each company was evaluated,” he says. “It is not often we get this kind of feedback, and the criteria prompts us to uphold further these high standards.”
He believes CPAs have a strong role to play in corporate governance and, like senior management, they should lead by example. “CPAs must personally uphold very high standards of integrity. They have access to very sensitive commercial information, so the way they handle that is key.”
The role of CFOs
For Pacific Basin Shipping, winner of the Gold Award in the Non-Hang Seng Index (Medium Market Capitalization) category, strong corporate governance is central to its ambition to be a leader in the shipping industry, and the practice is embedded in its mission and values. “Corporate governance is not a standalone exercise, it is integrated into our services, our conduct, and what we do every day,” says Kitty Mok, Company Secretary and Director, Risk at the company. She adds that the award is a great confirmation that the group is taking the right approach.
For Mok, one of the key elements of corporate governance is communication, both internally and externally, and this is an area the group will continually improve. “We want to continue to develop automation and enhance the production of regular reports and key performance indicators.” she says.
“Automation will enable faster and more accurate communication, which is key in making decisions and assessing risks in a fast-changing economy and volatile market.”
Mok believes chief financial officers have a key role to play in creating good corporate governance practices. “The tone from the top is very important. The CFO is key in driving certain standards. He is often the spokesperson for the company and knows what the market expectations are,” she says.
She thinks CPAs have a strong role to play too. “The training and background of CPAs is highly appropriate in helping a company map out its corporate governance strategy and processes,” she says.
Mok cautions that everyone involved should approach the process with a exible, rather than prescriptive mindset. “We should be careful not to just bring our textbook knowledge to the governance table when it comes to setting strategies and policies, but match it with commercial reality, a company’s strategy and business objectives.
“The road to success is to always ask ourselves why we need to do things in a particular manner and what value it would bring to the business,” she says.
“The tone from the top is very important. The CFO is key in driving certain standards. He is often the spokesperson for the company and knows what the market expectations are.”
Attention to communication
Technology company Lenovo is clear about the benefits of good corporate governance.
“We believe being a leader in corporate governance in the industry will help achieve efficient management, protection of shareholders’ rights, and enhance relationships with customers, suppliers, government and investors,” says Eric Mok, Company Secretary and Assistant General Counsel at Lenovo.
He adds that it also assists in the recruitment of global talents and potential board members.
The company’s high standards are incorporated into its Code of Conduct and other internal policies and guidelines, which affect the work process of all employees throughout the group.
Winner of the Platinum Award in the H-share Companies and Other Mainland Enterprises category, Lenovo is continuously looking for ways to improve its corporate governance, and it is currently in the process of reviewing its structure and disclosure format.
The group takes a three-pronged approach. It begins by looking at the Hong Kong Stock Exchange’s requirements as a basis for its corporate governance, and then adds international standards, and thirdly its own requirements and aspirations.
One area the company pays particular attention to is board communication.
“In addition to regular face-to-face board meetings, we are arranging more sessions for directors to express their opinion and provide their valuable insights on strategy and management,” Mok says. “This creates opportunities for the 10 non-executive directors to provide their comments freely and independently.”
The company is also constantly adjusting its corporate governance practices to keep pace with both the rapidly changing external economic environment and corresponding changes internally. Meanwhile, it places a strong emphasis on ensuring its corporate governance work is visible to investors and other stakeholders through the publication of quarterly earnings reports, its environmental, social and governance (ESG) report, its website and investor relations communications.
In terms of the award, Mok says: “It is a strong recognition of the collective efforts of the board of directors and management in maintaining a high corporate governance standard. Inevitably, it is also a reminder that you have to do even better next year.”
“We see corporate governance not as a compliance obligation generating work and costs, but as a competitive advantage generating value.”
The right culture
“Good corporate governance enhances the credibility and reputation of the company, as well as promoting and safeguarding the interests of our stakeholders,” explains Geert Peeters, Executive Director and CFO of repeat award winner CLP Holdings. This year, it won two awards: the Diamond Award in the Hang Seng Index category, and Sustainability and Social Responsibility Award.
He adds that the single biggest contribution to good corporate governance at CLP is the company’s culture. “We believe the culture of an organization shapes what it does and how healthy it is.”
At the centre of its corporate governance strategy is the company’s “Do the right thing” culture, which is guided by its Corporate Governance Framework and Code of Corporate Governance. “Together with our board oversight and transparent communications with investors and other stakeholders, we ensure that our ‘Do the right thing’ culture and commitment to achieving excellence permeate into the daily lives of every CLP employee,” he says.
The power company also recognizes that corporate governance is an evolving process, and it regularly reviews and revises its principles and practices to re ect changes in regulations and market developments, as well as demands from investors and other stakeholders. Peeters explains: “As an early adopter of the Hong Kong Stock Exchange’s Environmental, Social and Governance Reporting Guide, in 2016 we not only disclosed ESG information that fell under the ‘comply or explain’ provisions, but also included items under the recommended category.”
CLP is also committed to transparency and accountability in communicating with stakeholders. This commitment led to it creating a streamlined 2016 annual report and sustainability report to provide all essential information on the company. It has also replaced its annual ESG webcast with new initiatives, including ESG breakfast meetings and direct engagement with investors.
Peeters believes senior leaders have a responsibility to ensure their companies are doing the right thing, particularly energy companies that face disruption as a result of climate change and innovation. “We see corporate governance not as a compliance obligation generating work and costs, but as a competitive advantage generating value,” he says.
Hysan Development Company has three main drivers for its approach to corporate governance, namely accountability to stakeholders, relations with shareholders and board stewardship. It has established three governance-related board committees, well-defined risk management and internal control frameworks, as well as an internal audit department to underpin the board’s accountability.
“The board has the stewardship role, and is collectively responsible for strategic planning, risk management and internal control. It also sets the group’s culture and values,” says Maggie Cheung, General Counsel and Company Secretary at Hysan.
She explains Hysan has been emphasizing and enhancing its compliance policy, internal control and risk management system this year by introducing the “Three Lines of Defence model” to its existing framework, which is based on the Committee of Sponsoring Organizations of the Treadway Commission’s Enterprise Risk Management – Integrated Framework. “The underlying principle of this model is that, under the oversight and direction of senior management and the board of directors, three separate groups, or lines of defence, within the organization are necessary for effective management of risk and control.”
In the future, the group plans to focus on risk management in relation to technology, and it has appointed an advisor on IT security and digital strategy to the board for 2018 to strengthen its approach in this area.
Cheung thinks the Institute’s Corporate Governance Awards criteria set high standards for corporate governance, and says Hysan is honoured to be a winner. But despite the award, she thinks there is still more to be done. “Improvement in both corporate governance and ESG is a continuous voyage. We are committed to continually seeking improvements on these fronts through learning from our Hong Kong-based peers, as well as the continuously evolving standards overseas.”
This year, the Institute examined the corporate governance and sustainability disclosure and practices contained in more than 700 reports from listed companies and public organizations. A total of 20 awards were given out by the judges, three more awards than last year. “This year there were some new winners, including Swire Properties and Hang Lung Properties; and we are glad to see CLP who is a repeat winner, as well as Li & Fung and China Telecom who are returning winners back after lengthy absences from the Best Corporate Governance Awards, reflecting the fact that they see the value in continuing to improve their corporate governance,” said Mabel Chan, Institute President and Chairman of the Judging Panel.