Hi Owl88,
Did you manage to get my email address?
Anyway on HK board independence, there was a recent article in Singapore which focuses on statements made by reknown investor and activist, David Webb in shareholder oppression.
Ill post it here since the article has since been removed.
Let’s not pretend any more that independent directors (IDs) are independent, says Hong Kong shareholder activist David Webb.
He suggests abolishing the requirement for IDs and letting them be called independent only after being elected by minority shareholders.
IDs need to make up at least one-third of boards in Singapore and Hong Kong to provide an objective voice to ensure management acts in shareholders’ interests.
But Mr Webb, repeating a common criticism, says IDs are often picked because of their close relationship with controlling shareholders or board chairmen.
Shareholders are given “a sense of false comfort” as a result, says Mr Webb, 47, a retired investment banker who made his name in the past 14 years giving scathing, sharp and sometimes prescient commentary on the Hong Kong stock market through his website, “webb-site.com“.
“Good companies will still put good people on boards, bad companies will always find three people who are willing to endorse anything,” he says.
Mr Webb spoke to BT early this month when he was in town for this year’s Corporate Governance Week organised by investor lobby group Sias, or the Securities Investors Association (Singapore).
Having IDs only electable by minority shareholders could improve corporate governance in both Singapore and Hong Kong, he says.
“The reality is that if candidates are voted upon by controlling shareholders, the candidates will only be those who are acceptable to the controlling shareholder. Then the whole system breaks down…
“It’ll be more honest to say he’s the old school friend of the chairman, family doctor, whatever, he’s only there because the chairman likes him.”
Under Mr Webb’s system, controlling shareholders are not precluded from putting forward candidates they deem suitable, he notes – just that they have to abstain during voting.
This gives IDs a mandate to ask difficult questions without “being quietly asked to stand down”, he says.
Another policy Singapore and Hong Kong can look at is to have a legal framework for class-action suits, Mr Webb says.
“This can unify a fragmented set of plaintiffs for civil claims. If you have a shareholder with $2,000 of shares, another with $200,000, it might not be worth suing for. But if collectively, there’s a $200 million investment involved, and the wrong-doing amounts to millions, that’s very well worth it,” says Mr Webb.
In the US, various so-called frivolous or vexatious suits are brought to court which would not succeed but would otherwise harass or embarrass the defendants.
Australia avoided that by having a “loser pays” system. This results in only strong cases coming to court, says Mr Webb.
Such a system could work in Singapore and Hong Kong, he says. To help minorities cope with the costs of seeking legal redress, litigation finance companies can step in where a team of lawyers assess the merits of a case to decide whether to finance it.
In return for a share of potential damages paid out, these companies will pay the cost of bringing the case to court as well as bear the risks of paying defendants’ costs should the case fail.
This allows the private sector to take on the role of enforcing corporate governance, in addition to having regulators and the state do so, Mr Webb says.
“Any system like that has a deterrent effect on bad behaviour,” he says.
In Hong Kong, Mr Webb spends his time researching smaller companies and advocating for good corporate governance.
In 2003, he launched “Project Poll” to push for poll voting at shareholder meetings instead of voting by a show of hands. This was because companies packed meetings with employee shareholders such that the voting process became a charade, he says.
To advocate for poll voting, Mr Webb bought 10 shares in each of the 33 companies on the Hang Seng Index, and divided them into five lots of two shares, held by himself, his wife and three companies he established.
Under Hong Kong law, five shareholders at a meeting can demand a poll to be held – which Mr Webb duly did. It took six years for the law to catch up. In 2009, the “one share, one vote” regime he espoused became compulsory in all meetings of listed company shareholders.
“And this is important because even if the company has a majority shareholder, which they do, they can still count the other votes, subtract their votes from the totals, and then say okay, how did the public vote,” he says.
Mr Webb is also known to have moved share prices with his commentaries.
In July 2007, he raised doubts about a watch and jewellery maker called EganaGoldpfeil Holdings. A massive sell-off the next day caused its stock to plunge by up to 64 per cent.
The company denied Mr Webb’s allegations, before collapsing a few weeks later. It filed for bankruptcy in 2008 and was delisted this year.
Source: Business Times 22 October 2012
