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The best corporate governance goes hand in hand with a good corporate culture

With the Best Corporate Governance Awards 2019 now open for entry, this article from the Hong Kong Institute of CPAs discusses how improving corporate governance requires continual effort to internalize strong governance behaviours.

For the boards of listed companies, protecting shareholder value is a key responsibility. Good corporate governance can be a key driver in value-creation while also minimizing the risks an organization faces. But demonstrating the best corporate governance is a continual process of improvement rather than a one-time exercise. Practices evolve and organizations must ensure they understand and can meet new standards and requirements.

Continuing developments

The Institute has long campaigned for improving corporate governance in Hong Kong. Last year it released a report on the topic, authored by Syren Johnstone and Say H Goo of Hong Kong University, investigating corporate governance in the United Kingdom, United States, Mainland China and Singapore and whether Hong Kong could leverage on successful developments elsewhere. The report made 28 recommendations for improving corporate governance and culture. Since the publication of the report, the Institute has referred it to the Securities and Futures Commission and Hong Kong Exchanges and Clearing Limited (the stock exchange) and has invited the regulators to attend events discussing ways to strengthen corporate governance in Hong Kong.

The stock exchange implemented new corporate governance reporting requirements in the listing rules and the Corporate Governance Code at the start of 2019. These changes improved the transparency and accountability of board nomination, selection and appointment processes, especially in relation to independent directors.

All listed companies must ensure they are meeting these new requirements, but those which aim to demonstrate the best corporate governance must be ahead of the curve. “The best performers in most categories were still able to achieve high scores on the strength of their voluntary additional disclosures and practices. These companies were also likely to be early adopters of any changes in requirements, as they see the benefits of a good corporate governance regime to the long-term success and sustainability of the company,” noted The Judge’s Report for the Best Corporate Governance Awards 2018. Early adoption allows organizations to try out new ways of operating their business and reporting their corporate governance, and be better prepared for regulatory changes.

Positive external factors

Some organizations may not see good corporate governance as a direct benefit to them. But, as part of the community, organizations play an important role in employing citizens and providing them with products and services. The proof of good governance shows that an organization is taking its responsibility to all its stakeholders seriously. This can have positive benefits, as the introduction to The U.K. Corporate Governance Code issued in July 2018 by the United Kingdom’s Financial Reporting Council notes: “Successful and sustainable businesses underpin our economy and society by providing employment and creating prosperity. To succeed in the long-term, directors and the companies they lead need to build and maintain successful relationships with a wide range of stakeholders.” In this regard, good corporate governance and sustainability are increasingly important to investors, especially institutional investors. This is further evidenced by the stock exchange’s recent consultation proposals, which focused on upgrading the Environmental, Social and Governance (ESG) Reporting Guide under the listing rules.

Geert Peeters, Executive Director and Chief Financial Officer of CLP Holdings, a repeat winner at the Institute’s Best Corporate Governance Awards (BCGAs), said something similar in an interview with A Plus in 2017. “Good corporate governance enhances the credibility and reputation of the company, as well as promoting and safeguarding the interests of our stakeholders.” For CLP, “doing the right thing” is at the heart of operations and a key part of their corporate ethos – from the top of the organization down.

Demonstrating good corporate governance is not about box-ticking, but about ongoing monitoring and reviewing of practices to ensure they are helping the company meet its goals. “We see it as a never-ending commitment to constantly review and assess our policies to respond to the fast-changing environment, regulations and needs of our diversified businesses,” Kevin Hui, Director and Group Financial Controller, The Wharf (Holdings) Ltd, told A Plus in 2018. The Wharf were first time BCGAs winners in 2018. To assist, the company organizes regular training sessions for staff on corporate governance policies, with the expectation that over time the stronger awareness of the rules and codes will improve operations, reduce errors and lower the risks the company faces.

Demonstrate your corporate governance excellence

The Institute is this year celebrating the 20th year of its seminal BCGAs, which are open for entry until 12 August. Awards are available across a range of categories:

  • The main awards are open to listed companies and public sector and not-for-profit organizations.
  • Commendations for Website Corporate Governance Information are aimed at encouraging organizations to improve information disclosure about their governance policies and practices through their websites.
  • Self-nomination Awards for smaller organizations and non-profits to encourage improvements in these important sectors.
  • The Sustainability and Social Responsibility Reporting Awards focus on ESG reporting, which has become a key aspect of good organizational conduct and reporting.

Details about the entry process can be found on the Institute’s website. To demonstrate your organization’s commitment to high standards of governance, why not enter now?

This article was originally published in A Plus. You can also read the digital edition.