Project Poll swings back into action as the June year-end companies begin their AGMs, the first being Hang Lung Properties. We urge investors to vote against the placing mandate, which does not comply with the recommendations of Project Vampire, and against the re-election of an "independent" director and authorising directors to set their own fees. Time is short, so VOTE NOW.

Hang Lung Properties voting advice
3 November 2003

Company: Hang Lung Properties Limited (HLP)
Stock code: 0101
Meeting type: Annual
Date of meeting: 13-Nov-03
Time of meeting: 10:00
Advice date:  03-Nov-03
CCASS voting cut-off 10-Nov-03 VOTE NOW
Notice of meeting Click here
Voting method: will require a poll, all proxies will be counted
How to vote: See our voting guide

Note to journalists:
We have up to 4 proxy seats available inside this AGM. Please contact us if you want one.

Item Description Vote
1 Adopt the accounts FOR
2 Declare a final dividend FOR
3 Re-elect Nelson Yuen Wai-leung FOR
Re-elect Laura Chen Lok-yee AGAINST
Re-elect Wilfred Ho Sai-leung FOR
Authorise board to fix Directors' fees AGAINST
4 Re-appoint KPMG as auditors FOR
5A Mandate the directors to repurchase shares FOR
5B Mandate the directors to issue additional shares AGAINST
5C Mandate the directors to issue repurchased shares AGAINST

Note: the 4 resolutions contained in item 3 should be separately numbered for clarity.


Item 3, second part

Laura Chen Lok Yee (Ms Chen) is proposed for re-election as an independent non-executive director. The annual report contains a section on Corporate Governance, which states that a majority of the board of 9 directors (i.e. five) are "independent non-executive directors". That's up from 4 out of 9 last year, but has been achieved by re-designating Ms Chen as independent. She has been on the board since 1997 but was previously just described as a "non-executive director". We don't know why she wasn't considered independent by HLP before.

However, we oppose her re-election because she is also a director of HLP's parent, Hang Lung Group Ltd (HLG, 0010). That means that if HLG ever decides to make an offer to privatise HLP, or engages in connected transactions with it, she will be unable to participate in giving any advice to independent shareholders of HLP on whether to vote in favour of the deal. Our opposition has nothing to do with whether she is a competent or qualified person, but everything to do with avoiding conflicts of interest for independent directors.

In fact, the Hang Lung group of companies suffers from this problem in numerous ways - 3 of the 5 "independent" directors of HLP are also "independent" directors of HLG. Of those, one, the Vice-Chairman of both companies, Mr Yin Shang-shing, has been with the group since 1970 as an employee and was Managing Director of both until 1992, so we don't regard him as independent either.

This overlapping of directorships within the same group is more than just a theoretical problem. Last year, HLP privatised another group company, Grand Hotel Holdings Limited (GHH). In that case, GHH had a board of 8 directors, including 4 tagged as INEDs and one tagged as "non-executive director", being Ms Chen. Because she was also an NED of HLP and HLG, she was unable to advise the minorities on whether to accept the deal. As for the INEDs, three were also directors of HLP and two of those were directors of HLG. That left only one, an 80-year old director who had been on the board since 1961, long before HLG took over control of GHH, and he was the only member of the "Independent Board Committee". One can almost imagine him sitting there talking to himself.

Sadly, we believe this reflects an emphasis on form over substance in the corporate governance of the Hang Lung group. It is not enough to be seen to have a majority of independent directors if most of them are conflicted out of giving any advice to shareholders on the most important issues. And of course, HLG gets to vote its 63% stake in favour of their re-election anyway. So lodge your votes in protest.

Item 3, fourth part

We recommend against authorising the board to fix directors' fees, because this is a direct conflict of interest. It would be more appropriate for the board to propose a specific fee for each director, to be approved by shareholders. Other companies such as Hong Kong Exchanges and Clearing Limited (0388) and The Hong Kong and China Gas Co Ltd (0003) have done this. We emphasise that the proposal relates only to the fees of individuals as directors and does not include the other remuneration such as pay, bonuses and allowances. In the case of independent non-executive directors (the same people who sit on the remuneration committee), the directors' fee should be all they get.

Items 5B and 5C urges all investors to vote against the general issue mandate for all listed companies, for the reasons explained in Project Vampire, unless they comply with the recommendations set out in that article. The non-pre-emptive issue mandate allows management to choose the shareowners by allotment of shares. This corrupts the governance mechanism. Shareowners should choose management, not the other way around. If a company wishes to raise cash by issuing shares, then it should do so by rights issue.

If your company offers new shares to other investors at a discount, but not to you, then your company is transferring value from you to the new investors. Their gain is your loss. That's why we believe an issue for cash should be done by rights issue, failing which it should be limited to 5% of existing issued shares and a maximum discount of 5%.

This year so far, a majority of independent investors in 10 Hang Seng Index companies: Cathay Pacific, Cheung Kong Infrastructure, China Unicom, CITIC Pacific, Legend, MTRC, PCCW, Shanghai Industrial, Swire Pacific and Television Broadcasts have all voted against the issue mandate. In July, another index member, Johnson Electric, became the first member to modify their mandate to partially comply with the Project Vampire recommendations by cutting the size of the mandate to 5% of existing issued shares. HSBC, as a UK company, also complies.

Their fellow index members would do well to take note of this. After all, we don't mandate boards to buy back shares from chosen shareholders at a premium to market price, so why should they be allowed to issue shares to chosen shareholders at a discount?

©, 2003

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