17 March 2003
In what may be a first for Hong Kong, a shareholder has nominated a candidate for a directorship at the annual general meeting of a listed company. This is unprecedented because in most companies, the board picks its own members at the behest of the controlling shareholder.
Webb-site.com announces the nomination of its editor David Webb to the board of Hong Kong Exchanges and Clearing Limited (HKEx), at the AGM on 15-Apr-03.
Getting nominated is not as simple as it sounds. Article 90(2) of the Articles of Association of HKEx states in part:
"No person (other than a Director retiring in accordance with these Articles) shall be appointed or re-appointed a Director at any general meeting... unless:
(a) he is recommended by the Directors; or
(b) not less than seven nor more than twenty-eight clear days before the date appointed for the meeting there has been given to the Secretary, by a member (other than the person to be proposed) entitled to vote at the meeting, notice of his intention to propose a resolution for the appointment or reappointment of that person and a notice executed by that person of his willingness to be appointed or re-appointed..."
The bizarre rule in paragraph (b) means that although HKEx announced its results and published a notice of AGM on 12-Mar-03, our candidate had to wait until today to be nominated, as there are 28 clear days between today and the date of the meeting. If the nomination had been submitted any earlier, it would have been invalid. This rule, which is commonly found in Articles of HK-listed companies, makes it difficult for shareholders to nominate anyone and get them on to the ballot.
We are fortunate that HKEx has not yet sent out its proxy forms or annual report, so there was time to get our candidate onto the ballot. The element of surprise was vital in this respect - there would not be much point in running if your candidacy was not on the proxy cards because they had been sent before the 21-day window.
We considered the alternative route of seeking a blessing from the Directors under Article 90(2)(a), but this would have involved breaking cover and passing through a 3-man nominating committee which included the Chairman of the GEM Listing Committee (Lo Ka-shui) and a broker (Paul Fan Chor-ho) whose constituency was opposed to the abolition of minimum commissions. We have been a regular critic of both GEM and minimum commissions, so we opted for stealth. Nevertheless, we do hope that some of the other directors will support our candidacy.
FCL, along with David Webb and 3 other registered holders, will require a poll at the AGM so that all votes get counted, one vote per share - a principle which HKEx has not accepted in the past. For disclosure of interests, David Webb is interested in 10 shares of HKEx, including shares held by his wife and associated companies.
A strange animal
HKEx has a governance structure unique among HK listed companies. By law, no single shareholder can own more than 5% of the company. It currently has 15 directors, 8 of whom are "public interest directors" appointed by the Government, although the Government does not have any disclosed shareholding in HKEx. Of the other seven, six were elected in 2000 before the company was floated, and the other is the Chief Executive of HKEx, currently K C Kwong, who is due to leave at the end of April. His replacement has not yet been announced.
The number of directors who can be directly elected is limited by Article 90(1) to six. In its listing document, HKEx states that the total number of Government appointed directors after the 2003 AGM will be "no more than" the number elected by shareholders. This implies that two of the existing government appointees will stand down immediately after the AGM. There will then be 13 directors, including the Chief Executive, whose appointment is subject to SFC approval, which basically means Government approval. So elected directors will be in a minority. In an ironic way, this structure looks just like Hong Kong's Legislative Council.
Why is David Webb standing?
We believe that investors are vastly under-represented in the bodies that determine the structure of our market, including HKEx. In the last three years, the HKEx group, including its subsidiaries, The Stock Exchange of Hong Kong Limited (SEHK), and Hong Kong Securities Clearing Company Limited (HKSCC) have meandered through policy-making in a haphazard fashion without addressing many of the concerns of investors about the future of the market. We have seen a misguided foray into local trading of Nasdaq stocks, the deferral of abolition of minimum brokerage in line with the wishes of many brokers on the board of HKEx, the conversion of GEM into a dotcom casino by the relaxation of listing rules, an apparently abandoned plan to cross-list stocks with the London Stock Exchange, a failure to narrow the trading spread table, a failure to innovate the CCASS system, and of course, the penny stocks fiasco. That's just a sample - you can read more in our coverage of regulatory affairs.
The Exchange is no longer a private members club, run by brokers and for brokers. It is a key part of Hong Kong's financial services core economy. Many of the former members of SEHK and HKFE, who became the owners of HKEx when it floated, have sold their shares, and it is time for HKEx to adopt a more representative board which better reflects the interests of its shareholders and investors at large. We hope that all shareholders, and particularly institutional investors, will support the candidacy of David Webb.
As there are likely to be more candidates than the six seats available, it is likely that this will be a competitive race. If you elect us, we will do our best to further the interests of investors and the market as a whole. In the long run, a prosperous market can only be good for HKEx.
© Webb-site.com, 2003