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Corporate Governance Scorecard Project

Sponsored by:-HKIoD

Corporate Governance Development FoundationMr. Herbert H M HuiMr. Peter S H Wong

Executed by:-Prof Stephen Y L Cheung

City University of Hong Kong

Organized by:-

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Research Committee

• Coordinator– Prof. Stephen Y L Cheung (City University of Hong Kong)

• Members– Dr. Aristotelis Stouraitis (City University of Hong Kong)– Dr. J. Thomas Connelly (Chulalongkorn University)– Dr. Piman Limpaphayom (Chulalongkorn University)– Ms. Lynda Zhou (City University of Hong Kong)

• Research Assistants– Ms. Cindy Chen (City University of Hong Kong)– Mr. Justin Liang (City University of Hong Kong)– Mr. Sam Lam (City University of Hong Kong)– Mr. Sam Yang (City University of Hong Kong)– Mr. Simon Lam (City University of Hong Kong)– Ms. Sarah Wan (City University of Hong Kong)

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Research Methodologies I

• Survey results based on publicly available information

• HSI, HSHKCI, HSCCI, and HSCEI constituent stocks

• Based on information disclosed in 2002

• 168 major companies are covered

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Surveyed Companies I (as at 9/2003)

Allied Group (373) Brilliance Chi (1114) China Pharma (1093) CNAC (1110)

Allied Ppt (HK) (56) BYD Company (1211) China Res Land (1109) CNOOC (883)

Angang Newsteel (347) Cafe De Coral H (341)China Res Logic (1193)

CNPC (Hong Kong) (135)

Anhui Conch (914) Cathay Pac Air (293) China Resources (291) COFCO Intl (506)

Anhui Expressway (995) Chalco (2600) China Ship Dev (1138) COSCO Intl Hold (517)

Artel Group (931) Cheung Kong (1) China South Air (1055) COSCO Pacific (1199)

Asia Satellite (1135) China Aerospace (31) China Telecom (728) Culturecom Hold (343)

ASM Pacific (522) China East Air (670) China Travel HK (308) Dah Sing (440)

Bank of E Asia (23) China EB Ltd (165) China Unicom (762) Datang Power (991)

Beijing Airport (694) China Insurance (966) Chinese Est H (127) Denway Motors (203)

Beijing Ent (392) China Mer Hold (144) CIFH (183) Digital China (861)

Beijing N Star (588) China Mobile (941) Citic Pacific (267) Dream Int'l (1126)

Beijing Yanhua (325) China Oilfield (2883) CKI Holdings (1038) E&E Int'l (33)

BOC Hong Kong (2388) China Overseas (688) CLP Holdings (2) Eganagoldpfeil (48)

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Surveyed Companies II (as at 9/2003)

Esprit Holdings (330) GZI Transport (1052) HSBC Holdings (5) Jiangxi Copper (358)

First Pacific (142) HAECO (44) Huadian Power (1071) Johnson Elec H (179)

Fong's Ind (641) Hang Lung Group (10) Huaneng Power (902) K M Bus Hold (62)

Forefront Int'l (885) Hang Lung Ppt (101) Hung Hing Print (450) K. Wah Int'l (173)

Founder Hold (418) Hang Seng Bank (11) Hutch Harb Ring (715) Kerry Ppt (683)

Fountain Set (420) Henderson Inv (97) Hutchison (13) Kingmaker (1170)

Giordano Int'l (709) Henderson Land (12) Hysan Dev (14) LCH Bank (1111)

Glorious Sun (393) HK & China Gas (3) i-Cable Comm (1097) Lenovo Group (992)

Great Eagle H (41) HK Chinese Ltd (655) ICBC (Asia) (349) Lerado Group (1225)

Guangdong Inv (270) HK Electric (6) IDT Int'l (167) Li & Fung (494)

Guangnan (Hold) (1203) HK&S Hotels (45)

Interchina Hold (202) Linmark Group (915)

Guangshen Rail (525) HKEx (388) Intl Bk of Asia (636) Lippo China Res (156)

Guangzhou Inv (123) HKR Int'l (480) JCG Holdings (626) Maanshan Iron (323)

Guoco Group (53) Hopewell Hold (54) Jiangsu Express (177) Moulin Int'l (389)

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Surveyed Companies III(as at 9/2003)

MTR Corporation (66) Shanghai Ind H (363) Sinopec Kantons (934) TVB (511)

New Asia Realty (49) Shanghai Pechem (338) Smartone Tele (315) Varitronix Intl (710)

New World Dev (17) Shangri-la Asia (69) SW Kingsway (188) Vitasoy Int'l (345)

Next Media (282)Shenzhen Express (548)

Swire Pacific A (19) Vtech Holdings (303)

Ngai Lik Ind (332) Shenzhen Int'l (152) Swire Pacifice B (87) Wharf Holdings (4)

Oriental Press (18) Shenzhen Invest (604) TCC Int'l Hold (1136) Wheelock (20)

Pac Centry Ins (65) SHK Ppt (16) TCL Int'l Hold (1070) Wing Hang Bank (302)

PCCW (8) Shui On Cons (983) Techtronic Ind (669) Wing Lung Bank (96)

PetroChina (857) Shun Tak Hold (242) Texwinca Hold (321) Wong's Int'l (99)

Qingling Motors (1122) Silver Grant (171) Tianjin Dev (882) Yanzhou Coal (1171)

QPL Int'l (243) Singamas Cont (716) TPV Techonology (903) Yizheng Chem (1033)

RoadShow (888) Sino Land (83) Travelsky Tech (696) Yue Yuen Ind (551)

SaSa Int'l (178) Sino-I Tech (250) Truly Int'l (732) Zhejiang Express (576)

SCMP Group (583) Sinopec Corp (386) Tsingtao Brew (168) Zhenhai Refin (1128)

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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 documentation• Written request was sent to individual

companies. Only a few companies supplied us with information

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Objectives of Corporate Scorecard for Hong Kong Listed Companies

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

Define a methodology/ framework to assess corporate governancepractices in Hong Kong

Develop specific criteria and a measurement tool to evaluate individual companies

Set up processes to evaluate corporate governance of Hong Kongcompanies on an annual basis

Hopefully

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Consistency

• Each company was rated by two different members

• The overall results were cross-checked by academics

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Scorecard Followed The Five OECD Corporate Governance Principle

OECD principle

Number of questions & sub-questions

A. Rights of shareholders

16

B. Equity of shareholders

10

C. Role of stakeholders

4

D. Disclosure and transparency

30

E. Board responsibilities

26

86

• OECD is internationally recognized

• HKEx guidelines comprehensively covered

• 168 public companies surveyed

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Positive Correlation between Good Corporate Governance and Company

Valuation2002 End

0

1

2

3

4

5

6

7

8

9

10

30.00 35.00 40.00 45.00 50.00 55.00 60.00 65.00 70.00 75.00 80.00

Score

To

bin

's Q

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Market Valuation (Tobin’s Q) by Corporate Governance Entry Quartile

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Mar

ket

Val

ue

(To

bin

's Q

)

1 2 3 4

Ranking

Mean Score

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Corporate Governance Performance by Indices

HSI (恒生指數 ) HSHKCI (恒生香港綜合指數 ) HSCEI (恒生中國企業指數 ) HSCCI (恒生香港中資企業指數 )

30

35

40

45

50

55

60

65

70

75

80

Sc

ore

s

All

HSI HSHKCI HSCCI

HSCEI

Range

Mean

Weak

Strong

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Corporate Governance Performance by Industries

30

35

40

45

50

55

60

65

70

75

80

Sco

res

Range

Mean

IndustrialAll Properties Finance Utilities ConsolidatedEnterprises

Hotel &Misc

Weak

Strong

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Corporate Governance Performance by Categories

20

30

40

50

60

70

80

90

100

110

Sc

ore

s

A42.96

B82.78

C69.54

D74.88

E60.7

Range

Mean

Weak

Strong

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 (公開與透明化 )E: Board Responsibilities (董事會的責任 )

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A. Rights of Shareholders ( 股東的權利 )

Improvements:• Improve the quality of Notice to

Call Shareholders Meeting• Attendance of all Board

members• AGM minute

– any Q&A sessions?– any resolutions being solved?

84.49

27.79

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

Improvements:• Provide rationale/ explanation

for related-party transactions• Allow minority shareholders to

influence the Board• To facilitate voting by proxy

93.33

63.33

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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:• Disclose more details on the

safety and welfare of its employees

• Long-term employee incentive plan

100

41.67

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D. Disclosure and Transparency( 公開與透明化 )

Improvements:• Transparency in ownership

structure• Quality of Annual Report

– Basis of Board members’ remuneration

– Operating risks

• Communication with shareholders– Website’s contents

90.33

64.01

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E. Board Responsibilities( 董事會的責任 )

Improvements:• A set of written corporate

governance rules• Corporate vision/mission• The quality of the Audit

Committee Report in the Annual Report– Attendance– Internal control– Management control, etc.

81.67

41.67

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Results

• NOT finger-pointing exercise

• Important input for policy-makers, companies, and the public

• Score for individual companies will not make public

• Feedback report can be obtained for individual companies

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The Top 10 Best Performing Companies (by alphabetical order)

• Asia Satellite (1135)• Bank of East Asia (23)• China Mobile (941)• CLP Holdings (2)• HK & S Hotels (45)• HKEx (388)• HSBC Holdings (5)• Linmark Group (915)• MTR Corporation (66)• Vtech Holdings (303)

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