In a dark day for corporate governance reforms, the Hong Kong Government has rejected the HAMS Proposal to establish an investor representation group. Without enabling legislation for a levy on investors' trading, there will be no funding and no HAMS. The news comes despite widespread endorsement from market participants who want investor representation, rights enforcement, and a higher quality market.

Government Rejects HAMS Proposal
24 April 2002

Well, we tried. Over a year ago, we produced a proposal to establish the Hongkong Association of Minority Shareholders (HAMS) which would have put Hong Kong at the forefront of Asian corporate governance.


The HAMS Proposal includes a Policy Division to analyse the legal and regulatory framework and represent investors in the corporate governance reform process; an Appraisal Division to provide comprehensive and continuous corporate governance scoring and voting recommendations for all listed companies; and an Enforcement Division to conduct quasi-class actions, providing a civil financial deterrent to fraud and abuse of public shareholders, bringing the currently unaffordable legal remedies within reach of investors.

Professionally staffed and open to all investors for a nominal membership fee, HAMS would be principally funded by a 0.005% "Good Governance Levy" on market transactions, to make it a fair user-pays system based on the degree of participation in the markets. Only with that level of funding would HAMS be viable, which is why the market will not see spontaneous and sustained formation of investor groups without it. HAMS would practice its own good governance, with a Board of Governors elected by an estimated 50,000 investor members (half elected by individual members and half by institutional members). The levy and other aspects of HAMS would requires enabling legislation, which in practice requires Government to endorse it.

We won't repeat all the details of the proposal here, suffice to say that a wide range of market participants publicly endorsed the proposal, including leading asset managers and trustees, financial media, investor relations firms and professional associations. Privately, support for the proposal was even greater.


The Government's rejection appears largely to be based on the views expressed by the Standing Committee on Company Law Reform (SCCLR), a government-appointed committee which has been working on law reform since 1984. In a recent e-mail to, Deputy Secretary for Financial Services, Ms Susie Ho Shuk-yee (Ms Ho) wrote:

"in the light of the views expressed by members of the SCCLR, we are not in a position to take the HAMS proposal forward, in its present form. As at present advised, it is unlikely the HAMS proposal will form part of SCCLR's recommendations in its forthcoming consultation paper as part of the corporate governance review."

This is incredibly ironic. One of the three key purposes of HAMS was to provide, through the Policy Division, investor representation in the policy-making process, which is presently dominated by issuers, their advisers and the advisers' associations. The SCCLR contains not a single investor representative. If HAMS (or something like it) ever existed, then it would claim a seat at the SCCLR and other tables and be the authoritative voice of tens of thousands of investors, large and small.

The latest annual report of the SCCLR for the year to 31-Mar-01 was published on 7-Dec-01 (so much for prompt disclosure), and we thought as a demonstration of how policy-making works in Hong Kong, you should know who, according to that report, sits on the SCCLR and their affiliations.  Apart from "ex-officio" members, who are there because of their role in the Government or regulatory bodies, there are 12 outsiders appointed by the Government. These are all fine upstanding members of the community, but not a single one of the 12 represents primarily investor interests. Their biographies are not stated in the SCCLR report, but as far as we can tell from public information, they are:

Roger Best Partner of Deloitte Touche Tohmatsu, auditors to over 200 HK-listed companies. Council member of the Hong Kong Society of Accountants.
Henry Fan Hung-ling Managing Director of CITIC Pacific Limited, a member of the Hang Seng Index (HSI).
Betty Ho May-foon Associate Professor, University of Hong Kong and former corporate lawyer.
Angelina Lee Pui-ling Partner of leading local law firm Woo Kwan Lee & Lo, non-executive director of Henderson Land Development Co Ltd and Cheung Kong Infrastructure Holdings Ltd (both in the HSI) as well as Ltd and Kerry Properties Ltd. Her firm is legal adviser to about 100 listed companies.
Winston Poon Barrister.
Richard Thornhill Partner of leading corporate law firm Slaughter and May, who are lawyers to Orient Overseas (International) Ltd, Liu Chong Hing Bank Ltd and others.
Alvin Wong Tak-wai Partner of PriceWaterhouseCoopers, auditors to around 200 listed companies (not counting the Andersen clients they are about to inherit). President of the HKSA.
Ian Perkin Chief Economist of the Hong Kong General Chamber of Commerce, the largest business organisation in HK, so powerful that it has its own seat in the Legislative Council. It recently boasted that its members sit on over 30 government committees.
Randolph G Sullivan Executive Director of Dao Heng Bank Group Ltd, a member of the HSI until it was taken over by Development Bank of Singapore.
Peter Wong Shiu-hoi Managing Director of local brokerage Tai Fook Securities Group Ltd, which is controlled by the Cheng family and their New World Development Co Ltd, member of the HSI.
Michael W Scales Secretary of The Hongkong and Shanghai Banking Corp Ltd, the largest bank in Hong Kong, owned by HSBC Holdings plc, a member of the HSI.
William Tam Sai-ming A manager in the Company Secretarial department of Sun Hung Kai Properties Ltd (a member of the HSI).

The SCCLR is chaired by Court of Appeal judge Anthony Rogers.


The Government's Ms Ho wrote in her e-mail:

"Members of the [SCCLR] expressed the view that whatever merit there might be in some aspects of the HAMS proposals there was a fundamental difficulty in respect of the accountability of the body to be set up as to the use of public monies."

You have to admit, when it comes to accountability for public money, that's rather a rich comment from an unelected Government whose Chief Executive is selected by a business-dominated committee of 800 people. And in any case, for the levy we are talking about investors' money, not general taxpayers money.

The question of accountability comes despite the fact that HAMS would be accountable to any investor who chooses to join for a nominal (or potentially no) fee, and participate in electing the governing body. An estimated 50,000 members (10% of retail investors and 80% of institutions) would join in the first year. That's probably a larger constituency than any functional constituency in the Legislative Council. So if HAMS is not accountable, then who is?

We also proposed that the Chief Executive of HAMS would report to LegCo on its progress at regular intervals, just as Alan Greenspan reports to Congress, since LegCo would have the power, through legislation, to both enable and disable the Good Governance Levy which funds HAMS. An additional check we proposed was to have non-voting observers from the Consumer Council, the SFC, the MPFA and Legislative Council on the Board of HAMS.

Let's be honest. Accountability of HAMS is not the real issue - we've got more checks and balances in this proposal than in a space shuttle launch. The real accountability issue is the accountability of the big business plutocracy, which wants to preserve the status quo of minimal investor rights, no class actions, and exclusion of investors from policy making, whether it is the listing rules, accounting standards, company law, securities law, minimum brokerage commissions or anything else.

At present, in the football match that is corporate governance reform, we have the big business team on one side of the field, the government referee wearing business colours, and an undefended open goal where the investor team should be.

Behavioural Finance

Does Hong Kong really want shareholder participation in governance? Or do they really think that the status quo of minimal deterrent to bad governance will allow us to achieve a high quality market?

The behaviour of humans, like any other species, is motivated by reward and deterred by penalty. There's no question that the financial rewards of ripping off investors can be great. So what is the deterrent to abusing minority shareholders? There is very little chance of having to pay damages to investors when there is no class action system, no contingent fees, and lawyers who cost the Earth. Most shareholders simply can't afford to exercise their legal rights.

There is very little chance of meaningful regulatory action either - a controlling shareholder and director may get a slap on the wrist from the Stock Exchange or a reprimand or cold shoulder order from the SFC. No financial deterrent there. And almost no chance of going to jail - even if you are one of the handful who get prosecuted, the jury normally won't understand the case, which by then happened years ago, or you'll get off on a technicality.

We can't turn people into saints - we can only deter them from abusing their shareholders, to offset the financial rewards of doing so. Currently the rewards of abuse are great and the deterrent is minimal.

So what next?

The HAMS Proposal, for now at least, is dead. No levy, no show. We are not about to try and launch it from our spare bedroom on a shoe string. is done that way, but there's no way we can do more than scratch the surface of the problem. The Government has declined even to issue a formal market consultation on the proposal, perhaps in the knowledge of how much investor-based support it would receive, as indicated by our initial endorsement list. 

HAMS has no shelf life, and can be enabled any time the Government reconsiders. In a controlled-company market, we see no other way to leapfrog to the level of investor involvement seen in diversely-owned markets such as the UK and US.

Hong Kong is the loser in this decision, as its cost of capital and "governance discount" will remain high so long as the poor quality of the market deters good companies and discerning investors from using it. The bad drives out the good. California's giant pension fund CalPERS withdrawal from 4 regional markets of even lower quality is just the tip of the iceberg and should serve as a warning sign that investors are losing patience with governments who are unwilling to upgrade their market framework and who continue to put form over substance in their proposals.

Faced with this, capital votes with its feet, not just among stocks, but among markets. It may not be as public as a complete withdrawal, but global capital allocations of long-term capital are increasingly selective of governance standards. No amount of begging for hot money from the mainland will solve that fundamental problem.

To all of the organisations who publicly endorsed the HAMS Proposal, and to all the individual investors who sent messages of support, we say a big thank you for standing up and being counted. We're sorry it didn't work out.

©, 2002

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