'Biggest shake-up': Hong Kong's corporate governance ranking slumps on concerns of slipping market quality
Hong Kong's corporate governance ranking fell by the most in Asia-Pacific amid concerns over dilution in stock market quality, according to a report by the Asian Corporate Governance Association (ACGA) and investment firm CLSA.
Hong Kong dropped to sixth place from second in what was the "biggest shake-up" to the rankings in over 20 years, according to the 11th edition of the biennial CG Watch report, which gauges the corporate governance and environmental, social and governance performance of 12 markets in the Asia-Pacific region.
Japan's standing improved the most, jumping to second from fifth place in the previous study in 2020. Australia maintained its number one ranking, while Singapore and Taiwan were joint third.
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"We have real concerns about Hong Kong and how market quality is being lowered through government policy on different aspects of corporate governance," said Jamie Allen, secretary general of ACGA, at the launch of the report on Wednesday.
Hong Kong Exchanges and Clearing, the bourse operator, has undertaken several reforms since 2018 to boost listings. Photo: Yik Yeung-man alt=Hong Kong Exchanges and Clearing, the bourse operator, has undertaken several reforms since 2018 to boost listings. Photo: Yik Yeung-man>
"The market reputation for quality over the years [in Hong Kong] has been undermined by weighted voting rights, the expansion of secondary listings, the fact that many of these secondary listings get waivers, the introduction of SPACs and other areas."
The Hong Kong stock exchange reformed its listing rules in 2018 to lure companies with weighted voting rights, while some local regulations can be waived for foreign firms that choose secondary listings here.
"Hong Kong's drop in score reflects our concerns that the stock market reform agenda of the past few years has diminished shareholder rights and protections," according to a statement accompanying the report.
A spokesperson for Hong Kong Exchanges and Clearing said the exchange operator was "committed to continuously elevating the competitiveness and attractiveness of its markets and its listing franchise".
"As one of the world's leading fundraising centres, we welcome issuers and investors from across the region and around the world to our markets. Our listing rules are highly regarded and seek to balance investor protection, the maintenance of a high-quality market and the promotion of diversity and choice.
"Our reforms over the last few years, following extensive market consultation, have helped transform the DNA of our markets, adding vibrancy and diversity with a focus on promoting the development of many innovative companies of tomorrow, whilst also striking the right balance to ensure a robust framework to protect investors."
For the study, ACGA conducted desk and field research from April to November, including interviews with regulators, stock exchanges, auditors, civil society groups, investors and other stakeholders, as well as analysis of reports and notices from 180 large listed companies of the 12 markets.
CLSA surveyed 1,242 companies across 13 sector groups in Asia for its bottom-up corporate governance scoring system.
In the seven categories within ACGA's ranking, Hong Kong saw the biggest drop in scores in government and public governance, regulatory capacity and corporate governance reform, and civil society and media sections.
"What this report highlights is that Hong Kong has stayed flat if not actually lost some momentum against the other markets in the region," said Amar Gill, secretary general designate of ACGA.
Japan's score improved against the backdrop of an ambitious corporate governance action programme unveiled by the government in April. There was also a concerted effort by the Tokyo Stock Exchange to enhance shareholder value and improve gender diversity, according to the report.
"Listed companies in Japan also showed signs of improvement in our survey, while we see investors as more willing to challenge corporates via engagement and shareholder proposals," the report said.
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