From Asiamoney, September 2001
This month we lend our support to a proposal that is generating increasing interest in Hong Kong: the creation of a Hong Kong Association of Minority Shareholders, or HAMS.
This is the brainchild of David Webb, who has appeared regularly on our pages over the last two years in articles about Pacific Century CyberWorks and the independence of bank research. Webb, a former investment banker, has long been a vocal activist for corporate governance and minority shareholder rights through his site, webb-site.com, and back in March he proposed the creation of a designated body to represent investor interests. He has lobbied the Hong Kong government, and the endorsement list for HAMS will be published on September 3. Asiamoney's name will be on it.
HAMS proposes a 0.005% levy on share trades in Hong Kong - the same levy that is used to fund the SFC - which on the basis of recent turnover statistics would give the body an annual budget of around HK$300 million. It would fulfill three main purposes: it would lobby for legislative improvements, give ratings on companies according to the level of their corporate governance, and mount law suits in cases where minority shareholders find their position abused - a form of class action.
Clearly, there are two sides to this. On one hand there is no question that Webb's proposal has merit. Donald Tsang pledged to make Hong Kong a "paragon of corporate governance" back in March, when he was still finance secretary, and he was right to think of that as a worthwhile ambition. Hong Kong's strength as a financial centre requires it to maintain the highest standards of transparency and regulation, and good corporate governance is at the heart of that. But for the moment, Hong Kong falls short of what it could achieve. It was intriguing to read CLSA's recent controversial corporate governance report that found some of the city's most powerful companies sadly lacking in this respect.
Small investors are not properly represented, have no powerful voice, and are open to abuse in a country where majority shareholders are the norm and shares are spread less widely than elsewhere in the world.
On the other hand, the government - which has given a cautious welcome to the proposal - will have a few major issues to think about. Earlier this year Kwong Ki-chi, chief executive of Hong Kong Exchanges and Clearing, the company that runs Hong Kong's market, noted: "To propose there should be a statutory levy on anyone trading on the exchange to help fund a private association that is not subject to oversight by any regulatory authority - I don't think that is something done anywhere else in the world."
Kwong misses a crucial point here - HAMS would not be a private association because it would be accountable to LegCo, with the authority to abolish the levy if it wanted to - and in any case, HKEC is a profit-making company which must necessarily make it conflicted when it comes to the question of who to protect or fight for.
But a powerful, levy-funded, statutory body is a serious thing. A body with the ability to mount class actions is more powerful still and such an organization would run into a world of trouble if ever it gained a reputation for frivolous litigation. People don't want a litigious society in the mould of the USA here. Whoever runs HAMS would accept great responsibility - although Webb insists he is not trying to create a job for himself, and would not want to be CEO of the body if it is formed.
So this is not a decision to be taken lightly. But Hong Kong has an opportunity here to make a powerful statement of its intentions on market behaviour by approving the proposal and the levy. We hope it will.
(c) Asiamoney, 2001. This editorial is reproduced with permission.