Introduction to corporate sustainability and its trend in

Hong Kong

Prof. Stephen Cheung

School of Business

Hong Kong Baptist University

Contents

• corporate sustainability covers the environmental and social performance, employee management and corporate governance of a company

• Corporate social responsibilities (CSR) and corporate governance (CG)

• CG in Hong Kong• CSR in Hong Kong• Drivers for Organizations• Role of Government• Obstacles in running socially responsible businesses

Why should we care?

• Old ideas of doing business– Profit maximization– Concern on shareholders interest

• Today’s new standard– NOT only pay tax and comply with national

regulations– Sustainable development– Consider interest of all stakeholders and are expected

to take greater responsibilities in running a business– Corporate social responsibilities (CSR)

International trends

• Major trends in international business in recent years

• Business’s contribution to sustainable development

• Related to basic business activities• Impacts on stakeholders:

– Social; – Economic; and– Environmental

• Create additional value and strategic advantage

CG and CSR in Hong Kong

Corporate Governance Scorecard Project• Survey results based on publicly available inform

ation• HSI, HSHKCI, HSCCI, and HSCEI constituent st

ocks• 2002: 168 companies are covered• 2005: 174 companies are covered

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

Our objective

Research Methodologies

• Avoids subjectivity bias• Not dependent on companies’

willingness• Written request was sent to

individual companies. Only a few companies supplied us with full information

Consistency

• Each company was rated by two different research assistants

• The overall results were cross-checked by the research team

Scorecard Followed The Five OECD Corporate Governance Principle

OECD principle

Number of questions & sub-questions

A. Rights of shareholders

22

B. Equity of shareholders

13

C. CSR 9

D. Disclosure and transparency

32

E. Board responsibilities

45

121

• OECD is internationally recognized

• HKEx guidelines comprehensively covered

• 174 public companies surveyed

Positive Correlation between Corporate Governance Index and Company Valuation

Correlation=0.05, Significant at 1% level

Mar

ket

to B

oo

k R

atio

Improvement of CGI by Sections

Section/ Year 2005 Mean 2002 Mean

A 71.47 53.42

B 71.01 75.90

C 40.21 54.32

D 89.47 62.34

E 69.50 45.81

CGI 70.87 61.02

CGI increase by percentage 16.14%

Criteria for CSR

• Employee pension benefits

• Staff development

• Environmental policy

• Customer and supplier relationships

• Philanthropy

Drivers for Organizations

• Enhance image and reputation• Increase shareholders value• Reduce business risk• Legislative requirements• Customer loyalty • Employee loyalty• Improve business operation• Control of legal risks

Obstacles in Running Responsible Businesses

• Management practice

• Increasing cost?

• Monitoring and enforcement

• Sustainable development

Role of Government

• Tax initiatives

• Contribution to compliance expertise

• Moral suasion

Incentives

• CG, CSR index– Brand name

• CG, CSR investment fund– Investment communities

• Education

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