Following our recommendation, is pleased to note that investors have sent a clear message, voting by 70.2% against a proposal to allow the company to bypass board meetings and pass resolutions with a simple majority of signatures. We now call on HKEx to make this right by amending the Listing Rules to prohibit such articles, which would weaken corporate governance.

Shareholders veto HKEx resolution
22 April 2010

Following our recommendation of 11-Apr-2010, is pleased to note that investors today sent a clear message to Hong Kong Exchanges and Clearing Ltd (0388), the owner of what is currently Hong Kong's only stock exchange and for-profit regulator, that they will not accept proposals which weaken corporate governance.

In the vote on the special resolution, about 165.9m shares were voted in favour and 242.5m against. They didn't even come close to getting the 75% approval needed to change the Articles of Association, even with the support of the Government shareholding, which we can safely assume was voted in favour. The Government claims that it is not bound by its own law on disclosure of shareholdings, but it made a "voluntary" disclosure back on 7-Sep-2007 that it held 62,919,500 shares, which is now 5.84% of the issued shares. We wrote about that in Intervention Returns on 10-Sep-2007.

So taking out the Government shares, the investor vote was 103.0m (29.8%) in favour and 242.5m (70.2%) against. Hopefully this will be an end to the matter, but if any other companies are considering bypassing board meetings by allowing a simple majority of directors to pass resolutions, then you have been warned - investors will oppose it, and you will earn black marks in corporate governance for for even proposing it.

Keep in mind that HK's Listing Rules already give very little power to so-called independent directors: controlling or majority shareholders get to vote on INED elections, there only have to be 3 INEDs on each board (the average is currently 3.294), and they usually comprise a minority of the directors (currently only 125 of 1331 listed companies have a majority of INEDs). If other companies go down this path then it would allow companies to routinely approve resolutions by signature of the executive directors, without having to discuss the matter with INEDs.

Make it right

We now call on HKEx to do the decent thing and amend the Listing Rules to prohibit articles or bye-laws which allow the passing of written resolutions by simple majority, and instead to require unanimous approval for written resolutions, with the exception of any director who is confirmed to be mentally incapacitated due to illness or disability.

©, 2010

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