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Corporate Governance and Directors' Duties in Hong

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Corporate Governance and Directors' Duties in Hong ‘O‘O‘One‘O ne Jurisdiction, Two Regimes?’: A SocioSocio----legallegal Perspective on how Directors of Chinese Family Companies in Hong Kong ssshouldshould be Regulated A L E K Young A thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy Thesis submitted: March 2013 University of Western Sydney i ii Acknowledgement This decade long journey had been plague by years of heartache, setbacks, tears and occasional joy. I am ever so grateful for the collective wisdom of my supervisory team; Professor Michael Adams, Associate Professor Scott Mann and Doctor Marina Nehme. No words can express my gratitude and indebtedness for their kindness, guidance, and help, in particular, to Professor Michael Adams, because without his stewardship I could not have completed this thesis. Through this endeavour, I am also very grateful for the support and advice from many friends and colleagues in Australia and Hong Kong. Equally, there have been many critics whom expressed their scepticisms and opposition to my thesis. My initial reaction was one of anger and then despair, but upon reflection I realised that they have been helpful in pointing out my shortcomings. I wish to take this opportunity to express my heartfelt thanks to both my friends and critics. They are: Associate Professor Alex Lau, Honorary Professor Ted Tyler, Professor Albert Chen, Associate Professor Daniel Ho, Professor Lutz-Christian Wolff, Associate Professor CK Low, Professor Chong Kim-chong, Doctor Ann Black, Associate Professor David Morrison, Doctor Amanda McBratney, Associate Professor Charles Qu, Professor John Braithwaite, Professor Arie Frieberg, Professor John Farrar, Mister Philip Lawton, Doctor Len Gainsford, Professor Sam Blay, Doctor Grace Li, Doctor Andrew Simpson, Professor Stewart Clegg, Doctor George Li, Professor Paul Redmond, Doctor Vassili Joannides, Doctor Joel Swann, Associate Professor Gavin Nicholson, and Professor Myles McGregor-Lowndes. In addition, I wish to thank those who helped me gather research materials and data. They are Miss Betty Lau, Miss Trish Wang, Miss Tina Chu, Miss Zoë Lam, Doctor Alex CK Chan, Doctor Eileen Tsang, and Doctor Catherine Wong. I would also like to thank the superb editorial services of Miss Cecilia Tunnock. Another two individuals I wish to acknowledge are: Professor Raymond So and Associate Professor Brossa Wong for bringing me to Hong Kong to work and further my research. More importantly, without the financial and moral support of my mother and late grandmother this would not have been possible. I am eternally grateful for their love and many sacrifices. iii iv Statement of Authenticity The work presented in this thesis is, to the best of my knowledge and belief, original except as acknowledged in the text. I hereby declare that I have not submitted this material, either in full or in part, for a degree at this or any other institution. …………………………………… Angus Lester Ee Ken Young v vi Table of Contents Acknowledgments ............................................................................................... iii Statement of Authenticity................................................................................... v Table of Contents ............................................................................................... vii List of Tables ...................................................................................................... xxi List of Diagrams ................................................................................................. xxiii Abbreviations ...................................................................................................... xxv Publications Based on this Thesis ..................................................................... xxvii Abstract ............................................................................................................... xxix Chapter 1: Introduction ..................................................................................... 1 1.0 Introduction .................................................................................................... 1 1.1 Justification of the Research .......................................................................... 3 1.1.1 Maintaining Hong Kong’s Position as an International Financial Centre ...................................................................................................... 3 1.1.2 Asian Financial Crisis as Impetus for Further Reforms ................ 6 1.1.3 Unresolved Corporate Governance Concerns in Hong Kong ........ 8 1.1.4 ‘Gaps’ in the Literature .................................................................. 11 1.2 Thesis Research Questions, Methodology and Limitations ........................... 14 1.2.1 The Regulatory Problems and Research Questions ....................... 14 1.2.2 Methodology .................................................................................. 17 1.2.2.1 Extra-legal and Non-legal Issues ..................................... 18 1.2.2.2 Corporate Governance Regulation Research Methods ... 21 1.2.2.3 Cultural Factors ............................................................... 22 1.2.3 Limitations ..................................................................................... 24 vii viii 1.3 Structure of the Thesis .................................................................................... 25 1.4 Summary and Commentaries .......................................................................... 27 Part One: Corporate Governance and Directors’ Duties in Hong Kong: The Reforms, Rationale, and Values ................................................................ 30 Chapter 2: Reforming Corporate Governance and Directors’ Duties in Hong Kong ........................................................................................................... 31 2.0 Introduction .................................................................................................... 31 2.1 Broader Considerations in Corporate Governance Reforms .......................... 31 2.1.1 The Territory’s Economic Transformation .................................... 32 2.1.2 Regulatory Capture in Hong Kong ................................................ 35 2.2 Attempts to Reform Directors’ Duties ........................................................... 39 2.2.1 Initial Efforts .................................................................................. 39 2.2.2 Another Unsuccessful Attempt ...................................................... 40 2.2.3 The Next Round of Reviews ......................................................... 43 2.2.4 Introduction of Non-statutory Guidelines ...................................... 46 2.3 The Debates in the Most Recent Round of Reforms ...................................... 47 2.3.1 British Provisions as Model Law for Hong Kong ......................... 47 2.3.2 Latest Round in the Epic on Codification of Directors’ Duties . ... 50 2.4 Summary and Commentaries ......................................................................... 59 ix x Chapter 3: Principles and Core Values Underpinning Directors’ Duties in Hong Kong ........................................................................................................... 62 3.0 Introduction .................................................................................................... 62 3.1 The Principles of Corporate Governance and Directors’ Duties .................... 62 3.1.1 The Fundamentals of Corporate Governance ................................ 63 3.1.2 The Importance of Accountability ................................................. 65 3.1.3 Directors’ Role from a Legal Perspective ...................................... 68 3.1.4 The Underlying Principles and Values of Directors’ Duties .......... 70 3.2 General Law Fiduciary Duties in Hong Kong ................................................ 76 3.2.1 Duty to Act in Bona Fide for the Benefit of the Company ............ 77 3.2.2 Duty to Exercise Powers for a Proper Purpose .............................. 79 3.2.3 Unfettered Discretion ..................................................................... 80 3.2.4 No Conflict of Interests and No Secret Profits Duties ................... 81 3.3 General Law and Statutory Duty of Care in Hong Kong ............................... 86 3.3.1 The General Law Duty of Care ...................................................... 86 3.3.2 The Newly Enacted Statutory Duty of Care .................................. 91 3.4 Summary and Commentaries ......................................................................... 95 Part Two: Why Western Laws are Not Suitable for Chinese Family Companies in Hong Kong: Culture, Values and Norms Matter .................... 99 Chapter 4 The Intricacies of Regulating Family Companies in Hong Kong 100 4.0 Introduction .................................................................................................... 100 xi xii 4.1 The Importance of ‘the Family’ and Family Companies in Hong Kong …... 100 4.1.1 Families and Family Companies in Hong Kong ............................ 100 4.1.2 Family Share Ownership and its Impact on Governance ............... 103 4.2 Statutory Provisions for Family Companies in Other Jurisdictions ............... 108 4.2.1 United States .................................................................................. 108 4.2.2 South Africa ..................................................................................
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