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Abstract:
The collapse of Enron and WorldCom has focused considerable attention upon the company director as a 'gatekeeper' for good corporate governance. They are presently subject to ever increasing scrutiny and much of the recent reforms around the world have adopted a regulatory philosophy premised on keeping company directors on the 'straight and narrow' by compelling them to 'Do X', 'Do Y' or 'Do Z'. This approach presumes that legislators and regulators have the inherent ability to subject business decisions to systematic analysis and fails to recognize that such decisions often involve intangible and intuitive insights. This article seeks to balance the scales in favor of directors by offering them safe harbor through the enactment of a statutory business judgment rule for decisions that are made without any conflicts of interest and with full knowledge and appreciation of the material facts. In doing so, it will allow directors to get back to the basics of business within a capitalist framework namely, to promote entrepreneurism through the facilitation of legitimate business decisions and risk taking.

Abstract:
On 20 October 2008 CITIC Pacific Limited, a constituent stock of the Hang Seng Index, issued a profit warning to announce that it had losses of approximately HK$15.5 billion on leveraged foreign exchange contracts. This quantum represented some 80 percent of its aggregate after tax profit for the preceding two financial years and caused a 55 percent slump in its share price by the close of trading on 21 October following its one-day suspension. In addition, the losses necessitated the issue of a US$1.5 billion convertible bond to CITIC Group in Beijing which on conversion increased its shareholding to a 57.6 percent majority interest in CITIC Pacific.

In the opinion of the author this case highlights a lacuna in the regulatory framework in Hong Kong with some anomalous outcomes likely. In a nutshell, while the company and its directors will be censured for their breach of the Listing Rules they are unlikely to be correspondingly sanctioned under the Securities and Futures Ordinance. This article contends that the rectification of such anomalies requires the introduction of statutory backing to the Listing Rules which was first discussed by the government in 2003.

Corporate Governance, Regulatory framework

Abstract:
With every change of the rules of corporate governance comes an enhanced expectation of the role of the independent non-executive directors who are increasingly perceived to be the sentinels at the gate. However, as the pendulum continues to swing in the corporate governance debate, a key issue that has surfaced may be summarised aptly as “Who should be responsible‘” Are we perhaps in danger of imposing too much responsibility upon the shoulders of independent non-executive directors who are by definition part-time members of the board, and whose access to information depends significantly on the executive management of the company‘ With reference to two recent decisions by the Listing Committee of The Stock Exchange of Hong Kong Limited this article seeks to address a crucial policy issue, namely whether independent non-executive directors who are members of audit committees should be subject to a higher standard of care and accordingly be held as primarily responsible for breaches of Listing Rules.

Abstract:
With every change of the rules of corporate governance invariably comes an enhanced expectation of the role of the independent non-executive directors who are increasingly perceived to be the sentinels at the gate. However, as the pendulum continues to swing in the corporate governance debate, a key issue that has surfaced may be summarized aptly as 'Who should be responsible?' Are we perhaps in danger of imposing too much responsibility upon the shoulders of independent non-executive directors who are by definition part-time members of the board whose access to information depends significantly on the executive management of the company?

With reference to two recent decisions by the Listing Committee of The Stock Exchange of Hong Kong Limited this article seeks to address a crucial policy issue namely whether independent non-executive directors who are members of audit committees should be subject to a higher standard of care and accordingly be held as primarily responsible for breaches of Listing Rules.

Duty of care, directors liability, indepenmdent non-executive directors

Abstract:
The Stock Exchange of Hong Kong had an exuberant 2006 when it listed sixty-two companies. The listing of the Industrial and Commercial Bank of China Limited on its Main Board gained the exchange the enviable status of being home to the world’s largest initial public offering while the HK$333.2 billion in IPO capital raised during the year propelled it to the position of second amongst global exchanges behind London but ahead of New York.

This article examines an increasingly common feature of initial public offerings in Hong Kong namely the introduction of ‘cornerstone investors’ whose participation contributes positively towards enhancing the general receptiveness of an issue. However this approach does have a significant downside namely the creation of a new category of investor whose existence may not be completely consistent with the principles of equity of the Listing Rules in Hong Kong.

Cornerstone Investors, Corporate Governance, Regulatory Framework

Abstract:
Tianjin Port Development Holdings Limited set a world record when the retail portion of its initial public offering in Hong Kong was oversubscribed by a massive 1,703 times. This unprecedented heavy demand is estimated to have earned the company about HK$95.3 million, or some US$12.3 million, in interest income simply by placing the application moneys in overnight money market accounts as it prepares to allot the shares to the subscribers.

The confluence of highly favourable conditions namely, rising interest rates coupled with the euphoria over the listing of Mainland Chinese companies is conservatively estimated to result in HK$1.2 billion, or almost US$155 million, in gross interest income accruing to the companies that list on the Stock Exchange of Hong Kong during 2006. Using data from the 17 initial public offerings in Hong Kong for the five months to 31 May 2006, this paper highlights some shortcomings of the existing system and puts forth recommendations for their rectification which principal objective is a more equitable application of this 'windfall'.

Initial Public Offerings, Interest Income, Corporate Governance

Abstract:
On 29 December 2008 some 260 companies and individual businessmen took the unusual step of taking out full page advertisements in leading local newspapers to voice their objections to the proposal by The Stock Exchange of Hong Kong to extend the 'black out' period on the trading of shares by directors. The proposal which implementation was originally scheduled for 1 January 2009 was subsequently deferred by three months to 1 April. However this concession has not appeased critics who have called for the proposal to be dropped altogether.

This paper does not discuss the merits of the proposal or the reasons that have been put forward to pre-empt its implementation. Rather it focuses specifically on procedural aspects of the proposal and highlights a key issue has been overlooked amidst the noise and emotion that the debate has generated. This article argues that - contrary to common perception - the proper and competent forum to address any amendment to this proposal is not the Listing Committee of The Stock Exchange of Hong Kong but the Securities and Futures Commission albeit through the unprecedented exercise of a politically unpalatable and sensitive power.

Share trading by directors, process and procedure for amending Listing Rules

Abstract:
The enactment of 67A to the Companies Act of Malaysia allows its publicly listed companies to buy-back their own shares. This was seen as necessary to provide for a stabilization of the supply and demand, as well as the price, of shares that are listed on the Kuala Lumpur Stock Exchange and the Malaysian Exchange of Securities Dealing and Automated Quotation.

However, although apparently simple in its presentation, section 67A contains a number of unresolved enigmas. This article examines the regulatory framework with respect to share repurchases by listed companies in Malaysia. It commences with an overview of the legal and economic rationale for share buy-backs before proceeding to discuss the pertinent features of the current framework and drawing comparisons with other jurisdictions.

The article thereafter elaborates upon specific proposals that are necessary to address the shortcomings that are identified. It concludes with a summary of the principal recommendations which will simultaneously simplify the existing framework as well as enhance the protection of shareholders and creditors of the company.

Abstract:
The privilege against self-incrimination is a common law right of respectable antiquity. Recent attempts to water down the right by creating exceptions have not been successful. However, statutory intervention to modify or remove the privilege is as old as the right itself. In Hong Kong, as in other common law jurisdictions, there are statutes which impinge upon the right in one way or another. The advent of the Hong Kong Bill of Rights may have further implications, as statutory provisions inconsistent with the Bill are deemed to be repealed. This article traces the development of the privilege in the common law and discusses the possible impact of Art 11(2)(g) of the Bill on certain statutory provisions in Hong Kong.

Abstract:
On 25 July 2002 the Hong Kong Exchanges and Clearing Limited published a consultation paper titled 'Proposed Amendments to the Listing Rules Relating to Initial Listing and Continuing Listing Eligibility and Cancellation of Listing Procedures', which set out proposals for the delisting of shares in Part C titled 'Continuing Listing Eligibility Criteria'.

Although the section sets out eleven broad quantitative and qualitative criteria, focus centered on the 'minimum share price' criteria which deems the issuer as being in default where its share price trades below HK$0.50 (about US$0.065) for more than 30 consecutive trading days. Some HK$10 billion (approximately US$1.3 billion) was wiped off the market capitalization the following day as investors sold off their holdings of 'penny stocks', prompting the unprecedented action of removing Part C of the consultation paper on Sunday 28 July 2002.

This article examines the proposal to delist penny stocks. While agreeing with the general principles and objectives, the author nonetheless finds faults with the proposed mode of implementation. The paper concludes with the proposal for an alternative framework that is more consistent with the aspirations of the government to make Hong Kong the paragon of corporate governance.

Abstract:
Much has transpired since the inadequacies of corporate governance practices in East Asia were glaringly exposed by the Asian financial crisis. The crisis brought to the foreground numerous deficiencies, which had common roots in excessive over-leverage as well as the lack of transparency, disclosure and accountability. These issues have been explicitly recognized with the release of the White Paper on Corporate Governance in Asia by the Asian Roundtable on Corporate Governance in June 2003.

By responding in part to the White Paper, this article sets out a roadmap which ultimate objective is the enhancement of the practice of corporate governance in three jurisdictions namely Hong Kong, Malaysia and Singapore. These countries are selected as proxies for the region with the choice premised upon their common legal framework which emphasizes the rule of law, the liquidity of their capital markets and the high mobility of capital without the imposition of any controls. By setting up a roadmap couched in broad principles as regards the roles and duties of directors, shareholders and regulators, this paper seeks to provide some ideas that have the distinct advantage of adaptability across jurisdictions thereby transcending the cultural divide of the East Asian region.

Abstract:
Companies have long practised the policy of allowing their employees to "self-certify" sick leave, which allows the individual employee to declare that he or she is unfit to report for work without having to produce a certificate from a qualified medical practitioner. The entire system is, in essence, one that calls upon the integrity of the employee concerned since few, if any, questions are raised with respect to the "honesty system" within which self-certification operates. An interesting question is therefore posed for the corporate sector: If self-certification is allowed for employees, then why should the same not be extended to directors of companies? In particular, why should we not introduce a system that does away with a myriad of often difficult to monitor rules as regards the independence of directors, and instead allow the individual director to self-certify his or her independence?

The primary objective of this article is to explore the degree of acceptance for a pragmatic concept of self-certification by advancing a possible "stick and carrot" model that may bring about a new generation of independent non-executive directors who will be simultaneously subject to a higher standard of care as well as to a more commercially realistic level of protection against frivolous lawsuits by disgruntled shareholders. Although specifically written in response to the recent changes to the Listing Rules in Hong Kong, the generic nature of the subject matter transcends national boundaries and is expected to be of significant interest to regional counterparts that share broadly similar regulatory frameworks with respect to corporate governance practices.

independent (outside) directors, corporate governance

Abstract:
Information asymmetry between various parties has traditionally been advanced as the principal reason why initial public offerings are, on average, under priced. Two agency explanations for this under pricing exist, namely, that investment bankers find it less costly to market initial public offerings that are under priced and the quid pro quos that underwriters receive from buy-side clients in return for allocating such issues to them. More recently, proponents of behavioural finance have sought to document the exploitation by owners of companies of this asymmetry for the maximization of their personal wealth.

Using data for the 190 initial public offerings in Hong Kong over the four-year period from January 2003 to December 2006, this paper examines the duties of directors with respect to the issue of shares by companies and sets the case for a possible breach of such duties where the initial public offering is significantly under priced. It argues that, rather than being viewed as a 'success', the excessive rates of over-subscription for shares during an initial public offering, and the associated short-run under pricing thereof, should more appropriately be viewed as a loss for the company for which its directors ought to be held accountable.

Directors Duties, Initial Public Offerings, Liability for Underpricing

Abstract:
Information asymmetry between various parties has traditionally been advanced as the principal reason why initial public offerings are, on average, under priced. Two agency explanations for this under pricing exist, namely, that investment bankers find it less costly to market initial public offerings that are under priced and the quid pro quos that underwriters receive from buy-side clients in return for allocating such issues to them. More recently, proponents of behavioral finance have sought to document the exploitation by owners of companies of this asymmetry for the maximization of their personal wealth.

Using data for initial public offerings in Hong Kong for the year 2003, this paper examines the duties of directors with respect to the issue of shares by companies and sets the case for a possible breach of such duties where the initial public offering is significantly under priced. It argues that, rather than being viewed as a 'success', the excessive rates of over-subscription for shares during an initial public offering, and the associated short-run under pricing thereof, should more appropriately be viewed as a loss for the company for which its directors ought to be held accountable.

Directors Duties, Initial Public Offerings, Liability for Underpricing