A Plus

Governing governance

October 2017

The Asian Corporate Governance Association is committed to tracking corporate governance quality across Asia Pacific and getting people talking about developing better practices in the region. Jamie Allen tells Nicky Burridge about how Hong Kong’s corporate governance landscape can improve

Photography by Calvin Sit

Jamie Allen, Secretary General of the Asian Corporate Governance Association (ACGA), began his career in journalism, and thinks his early training was the perfect foundation for the work he does now. “I don’t think I could do the research without my journalistic background. A lot of the people we hire have journalistic backgrounds too,” Allen says.

He adds that one of the great things about journalists is that they are not afraid to ask questions or admit they do not know something.

ACGA was founded in 1999 on the belief that corporate governance is fundamental to the long-term development of Asian economies and capital markets. It aims to be an independent voice for corporate governance reform in Asia and carries out independent research on 12 different markets. “In Asia, there are a lack of independent NGOs and civil society groups working in corporate governance, so we really felt the region needed an independent research organization,” Allen says.

He explains that the overall objective of the organization has always been to raise systemic standards, looking at the rules and how well they are being enforced and implemented. “We try to take a holistic approach to corporate governance and work out in the different ecosystems what are the strengths and weaknesses, and how we can help make recommendations to improve different markets,” he says.

Allen jokes that one of ACGA’s biggest successes has simply been surviving.

“The first five years were pretty tough. The second five years was about consolidating, and the third five years was about growing,” he says.

He adds that it is difficult to create a genuinely non-profit membership association in the region, although he is proud of the network ACGA has built up, with members including asset managers, listed companies, the Big Four accounting firms and universities. “We always wanted a diverse membership. We didn’t want to be pigeonholed as an industry body. We felt that having diverse views would strengthen our research,” he says.



Audit reform

One of the key areas of corporate governance where Allen thinks Hong Kong could improve is audit reform. “It has been an issue we have focused on for many years, going back to 2010,” he says.

He adds that Hong Kong is one of only three markets in Asia, alongside India and the Philippines, that does not have a proper independent regulatory body.

He explains that such a body helps with audit regulation and can also improve the overall accounting industry. “A lot [of the work of an independent regulator] is about trying to educate, strengthen and give guidance,” he says.

Allen says the ACGA is in favour of the Financial Reporting Council becoming the audit regulator. He also thinks Hong Kong should do more to develop a comprehensive vision and strategy for its audit industry, and that the government lacks a clear strategy for how it wants to develop both the capital markets and corporate governance in Hong Kong. “You get very mixed signals,” he says.

One area in which he feels this is coming out is dual-class share structure, in which founders or insiders control the company without holding a majority of the shares. “Our understanding is that the government is quite in favour of dual class shares. We are strongly opposed, as are most of our members and most institutional investors and accountants,” he says. “Our concern about dual-class shares is it will lead to investors discounting the Hong Kong market. We don’t want Hong Kong to have an entrenched discount like Korea.”

“A lot of big companies are quite conservative and resistant to looking at corporate governance as more than a compliance tool.”




He also points to a lack of ambition from the government, with Hong Kong’s overall score in ACGA’s biennial CG Watch report – a regional survey undertaken every two years in collaboration with investment bank and broker CLSA – remaining broadly flat since 2010. Its score for auditing has actually gone down, which Allen attributes to Hong Kong’s lack of an independent audit regulator.

Allen adds that if Hong Kong had set up an independent audit regulator, it would be scoring close to 70 in CG Watch rather than the mid-60s, and it would be rated higher than Singapore, through just that one change.

Another area of frustration that Allen identifies is that while the best companies in Hong Kong are getting better in terms of corporate governance, for others the evolution is very slow. “A lot of big companies are quite conservative and resistant to looking at corporate governance as more than a compliance tool,” he says. Instead, he says companies should think about corporate governance as a real driver of value and improvement.


Strong ecosystems

The latest CG Watch highlights the importance of having a good ecosystem, which it identifies as being the differentiating factor between long-term system success and failure.

Allen says Australia, which was the highest ranked market in the latest report, has one of the best systems for corporate disclosure across the board, including financials, corporate governance, and environmental, social and governance reporting.

He says the ecosystem works well in Australia and investors have more influence because of the country’s large investor industry, due to its compulsory superannuation funds.

He points out that Hong Kong does not have a large group of domestic investors, such as pension funds. “In a healthy governance system, there is a balance between the different parts of the ecosystem.


“In Asia, we have very strong companies and weak investors. This means companies do not really listen to investors,” he says. Allen adds that sometimes investors voted in favour of transactions, article amendments or annual general meeting proposals, even though they were against their principles or long-term interests because they did not want to lose corporate access in the short-term.

One area in which the scores in Asia are gradually rising is enforcement. “I think regulators are realizing that they are going to be judged by how much they enforce the rules,” Allen says. Although he adds that most markets still need to improve on the areas of corporate disclosure and shareholder rights.


Burning curiosity

Allen, who was born in Singapore to an English mother and Australian father, spent most of his early life in Australia. After completing a combined honours degree in Mandarin and political science, he decided he would like to come to Hong Kong and work as a journalist. “The South China Morning Post took me on and forced me to be a cadet [an Australian term for a trainee journalist]. I started right from the bottom. I was paid HK$5,000 a month for the first year. It was pretty tough but I got a good training,” he remembers.

Once he had finished his training, he started writing articles about the environment and later moved into business journalism. He got a job with the Economist Group, before taking some time off to write a book about the Hong Kong handover, Seeing Red.

“The reality is the demands on our time go up exponentially but the resources only go up gradually. But it is a good thing in a way, as it forces you to prioritize and make better choices.”

In 1997, he started working for a private equity fund, whose chairman had been on his advisory board at the Economist Group, writing quarterly reports, and this soon developed into doing corporate governance work. “In 1999, we thought there is a lot we could do here, why don’t we set up a pan-Asian private sector committee to do research and educational work,” Allen says. “We thought it would be a part-time role but within 18 months it became a full-time job, and here I am 18 years later,” he adds.

While ACGA started as a research body, it moved into advocacy work around four years after it was founded, talking directly to regulators and companies. “Building those direct relationships took some time. It took a couple of years for the regulators to realize who we were, and then another couple of years for them to realize we were here to make a constructive contribution,” he says. Some markets were more difficult than others, and Allen says it took several years before they were accepted in Taiwan, Malaysia and Thailand. China has also been challenging. “We have always been very persistent and patient. We take a very long-term view,” he says.

Covering so many different markets is challenging, and ACGA remains the only corporate governance group in the world that covers a region. Another challenge is resources.

“The reality is the demands on our time go up exponentially but the resources only go up gradually. But it is a good thing in a way, as it forces you to prioritize and make better choices,” he says.

When not thinking about how to improve corporate governance across Asia, Allen enjoys travelling with his wife, cooking, hiking, reading and just relaxing. But even during his leisure time, he is still weighing up risks and benefits. “I took up horse riding 10 years ago, and we went riding in Mongolia. It was stunning. I loved it and really loved horse riding,” he says. “But six weeks later, I was thrown from a horse and broke my right wrist really badly and had to have metal pins put in. I thought, I need my hands for my livelihood, so I stopped horse riding, which is a shame.” ◆


Asian Corporate governance quality market rankings, according to the ACGA’s report CG Watch 2016 – Ecosystems matter: 1. Singapore 2. Hong Kong 3. Japan 4. Taiwan 5. Thailand 6. Malaysia 7. India 8. Korea 9. China 10. Philippines 11. Indonesia