HKIoD Corporate Governance Score-card Project

Organized by:

Sponsored by :

HKIoD Corporate Governance Development Foundation

Executed by :

Hong Kong Baptist University's research team led by Prof. Stephen Cheung Dean of School of Business 1 Research Committee • Coordinator – Prof. Stephen Y L Cheung •Members – Dr. J. Thomas Connelly (Chulalongkorn University) – Mr. Chung Cheong Wing • Research Assistants – Mr. Cheung Tsz Yiu – Ms. Jiang Jiayi – Ms. Lau Shuk Kwan – Mr. Meng Jia Cong – Mr. Sin Shing Him – Ms. Zhou Wei Shu – Ms. Zhu Ling hui

2 Research Methodologies I

• Survey results based on publicly available information • HSI, HSCCI, HSCEI, and HSLI constituent stocks • Based on information disclosed in 2011 • 121 major companies are covered

3 Surveyed Companies I (as at 12/2011)

ABC (1288) Belle Int'l (1880) Coal (1898) China Railway (390) China Comm Cons Agile Property (3383) BOC Hong Kong (2388) China Res Land (1109) (1800) AIA (1299) Brilliance Chi (1114) China COSCO (1919) China Res Power (836)

Air China (753) BYD Company (1211) China Life (2628) China Resources (291)

Alibaba (1688) Cathay Pac Air (293) China Longyuan (916) China Shenhua (1088)

Anhui Conch (914) CCB (939) China Mer Hldgs (144) China Taiping (966)

Bank of China (3988) CH Rongsheng (1101) China Mobile (941) China Telecom (728)

Bank of E Asia (23) CHALCO (2600) China Oilfield (2883) China Unicom (762)

Bankcomm (3328) Cheung Kong (1) China Overseas (688) ChinaHongqiao (1378) ChinaRes Cement Beijing Ent (392) China Agri (606) China Rail Cons (1186) (1313) 4 Surveyed Companies II (as at 12/2011)

CITIC Bank (998) Dongfeng Group (489) Inv (270) Hutchison (13)

CITIC Pacific (267) Esprit Hldgs (330) Hang Lung Group (10) ICBC (1398)

CKI Hldgs (1038) Evergrande (3333) Hang Lung Prop (101) Jiangxi Copper (358)

CLP Hldgs (2) FE Horizon (3360) Hang Seng Bank (11) Kerry Prop (683)

CM Bank (3968) FIH (2038) Henderson Land (12) Kunlun Energy (135)

CNBM (3323) Franshion Ppt (817) Hengan Int'l (1044) Lenovo Group (992)

CNOOC (883) GAC Group (2238) HK & China Gas (3) Li & Fung (494)

COSCO Pacific (1199) Galaxy Ent (27) HKEx (388) Longfor Ppt (960)

Country Garden (2007) Gcl-Poly Energy (3800) HSBC Hldgs (5) Mengniu Dairy (2319)

CPIC (2601) GOME (493) Huaneng Power (902) MGM China (2282) 5 Surveyed Companies III (as at 12/2011)

Minsheng Banking Renhe Comm (1387) (3808) Wynn Macau (1128) (1988) MTR Corporation (66) Sands China Ltd (1928) SJM Hldgs (880) Yanzhou Coal (1171)

ND Paper (2689) Shanghai Ind H (363) Swire Pacific 'A' (19) Yue Yuen Ind (551)

New World Dev (17) Shangri-La Asia (69) Tencent (700) Yuexiu Property (123)

OOIL (316) Shimao Property (813) Tingyi (322) Yurun Food (1068)

Parkson Group (3368) SHK Prop (16) Tsingtao Brew (168) Zijin Mining (2899)

PetroChina (857) Sino Land (83) Want Want China (151) Zoomlion (1157)

PICC P & C (2328) Sinofert (297) (2338) ZTE (763)

Ping An (2318) Sino-Ocean Land (3377) Weigao Group (1066)

Poly Hk Inv (119) Sinopec Corp (386) Wharf (Hldgs) (4)

Power Assets (6) Sinopharm (1099) Wheelock (20) 6 Objectives of Corporate Scorecard for Hong Kong Listed Companies

Encourage adoption of best practice of corporate governance in Hong Kong through a systematic evaluation of current practices Hopefully

Set up processes to Define a methodology/ Develop specific criteria evaluate corporate framework to assess and a measurement tool governance of corporate governance to evaluate individual Hong Kong practices in Hong Kong companies companies on an annual basis

7 Research Methodologies II

• Avoids subjectivity bias • Not dependent on companies’ willingness • However, not as rich as an internal assessment ... • ... and captures only what the companies released in public and their documentations

8 Consistency

• Each company was rated by two different members • The overall results were cross-checked by academics

9 Scorecard Followed The Five OECD Corporate Governance Principle

Number of OECD principle questions & sub-questions •OECD is A. Rights of 23 internationally shareholders recognized B. Equity of 14 shareholders • HKEx guidelines C. Role of 13 comprehensively stakeholders covered D. Disclosure and 42 transparency • 121 public E. Board 59 companies responsibilities 151 surveyed

10 Correlation between Corporate Governance and Company Valuation

11 Market Valuation by Corporate Governance Score Quartile

12 CGI compared with 2009

CGI (score) compared with 2009 Improvement Ratio (score) <-10 2.44% -10~-5 14.63% -5~0 39.02% 0~5 26.83% 5~10 10.98% >10 6.10% Mean of CGI is similar compared with year 2009.

13 Corporate Governance Performance by Indices

HSCCI (恒生香港中資企業指數) HSCEI (恒生中國企業指數) HSI (恒生指數) HSLI(恒生綜合大型股指數) 14 Corporate Governance Performance by Industries

15 Corporate Governance Performance by Categories

A: Rights of Shareholders (股東的權利) B: Equitable Treatment of Shareholders (對股東的公平待遇) C: Role of Stakeholders in Corporate Governance (利益關係團體在公司治理中扮演的角色) D: Disclosure and Transparency (公開與透明度) E: Board Responsibilities (董事會的責任) 16 A. Rights of Shareholders (股東的權利) Improvements: • Provide the AGM minutes • Board members attend the AGM • Provide Q & A Session

17 B. Equitable Treatment of Shareholders (對股東的公平待遇 )

Improvements: • mechanism to allow minority shareholder participation – Such as cumulative voting

18 C. Role of Stakeholders in Corporate Governance (利益關係團體在公司治理中扮演的角色)

Improvements: • underprivileged workers • CSR report • explicitly mention environmental issues in its public communications

19 D. Disclosure and Transparency (公開與透明化 ) Improvements: • Corporate governance structure • The information of the company secretary • The disclosure of management's shareholdings

20 E. Board Responsibilities (董事會的責任 ) Improvements: • Corporate vision / mission • Professional/accredited directors' training • Orientation to new directors • Whistleblowing policy

21 Results

•NOTfinger-pointing exercise • Important input for policy-makers, companies, and the public • Score for individual companies will not be made public • Feedback report can be obtained for individual companies

22 Ten Best Performing Companies in Corporate Governance Score (by alphabetical order)

Bank Of China (3988) HKEx (388)

China COSCO (1919) HSBC Hldgs (5)

China Life (2628) ICBC (1398)

CLP Hldgs (2) Lenovo Group (992)

CNOOC (883) MTR Corporation (0066)

23 Conclusion

• A better regulatory system starting from more disclosure • Independent Non-executive Directors (INED)- more responsible. • Professional training programs for directors • Mission Statement/ Corporate Culture

24 ~ END ~

25