(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Quentin Webb
HONG KONG, Sept 29 (Reuters Breakingviews) - Powerful owners
hold back Asia's corporate governance push. A flagship review of
the region's standards says it is gradually improving, despite
frequent blow-ups. The assessment by regional brokerage CLSA and
the Asian Corporate Governance Association urges institutional
investors to speak up more. Fair enough - but unless outsiders
get more say over independent directors, they remain at the
mercy of majority shareholders.
The report recounts scandals from book-cooking at Toshiba
to the crisis at Malaysian fund 1MDB. And it throws up
arresting statistics. In Japan, India, South Korea and
Indonesia, CLSA analysts doubt the cost of capital informs
management thinking at a majority of companies - a worrying
harbinger of future value-destruction.
Meanwhile, CLSA's scribblers in Seoul, Jakarta and Bangkok
reckon a majority of firms in those countries have undertaken
harmful related-party transactions. Thailand is the only place
where they think even a fifth of directors behave independently.
There are signs of light. Japan in particular is improving,
after a broad push to make companies better-run and more
profitable. Overall, CLSA and ACGA reckon regional governance is
getting better, and suggest investors and company executives
could take the baton from regulators to drive future
True: they could. It's fair to say that money managers,
especially domestic houses, often hesitate to call out bad
behaviour, or vote against management. But a dose of realism is
Corporate governance works best when ownership is diffuse
and management is professional. However, many Asian companies
remain controlled by powerful families, giant parent
conglomerates or state actors. Sometimes outsiders get
meaningful vetoes: as Hong Kong shareholders have for
related-party deals, for example. But public grumbling and
protest votes rarely work unless the board and the majority
owner have enough conscience to be shamed into doing the right
One useful idea floated in the report would be to let
outside shareholders vote separately on independent directors.
This already happens for controlled companies in Britain. Such a
policy would surely encounter serious resistance from majority
owners. All the more reason to support it.
On Twitter twitter.com/qtwebb
- "Asia is getting better" when it comes to corporate
governance, brokerage CLSA and the Asian Corporate Governance
Association concluded in a biennial report released on Sept. 29.
- CLSA's "bottom-up" survey of companies covered by its
equity analysts saw Japan move up the rankings to second place
behind Australia, as domestic reforms "tangibly improve
behaviour." Third, fourth and fifth place were taken by
Singapore, Hong Kong, and Taiwan, followed by Thailand, India
and Malaysia. The lowest scores in the CLSA survey, which covers
11 Asian nations and includes Australia for comparison, were
awarded to China, the Philippines, Indonesia and South Korea.
- The ACGA's "top-down survey" of overall market practice,
which grades markets by their discipline, transparency,
independence, responsibility, fairness and environmental and
social responsibility, was led by Singapore and Hong Kong.
- "Reforms matter but how companies respond and deliver them
is crucial. Investor engagement makes persistent improvement
more likely," the authors wrote. "Asia is getting better and
will continue to do so if stakeholders, including agitators,
- For previous columns by the author, Reuters customers can
(Editing by Pete Sweeney and Katrina Hamlin)