Leadership Forum 2005 Workshop I: Corporate Governance in Practice Paul Chow Chief Executive, HKEx 16 June 2005

2 Pressure for corporate governance reforms comes from many directions Corporate scandals Higher expectations from investors Intense competition for businesses and funding Evolution/ convergence of international best practices CG Reforms

3 In Hong Kong, Corporate Governance standards have enhanced significantly since the early 1990s 1993 –  Code of best practices  Disclosure in Annual Reports  Guidelines on INEDs  Code of best practices  Disclosure in Annual Reports  Guidelines on INEDs  SCCLR CG proposals (phase 1)  HKEx Consultation on CG issues  HKEx Consultation Conclusions on CG issues  FSTB Corporate Action Plan  SCCLR CG proposals (phase 2)  HKEx Consultation Conclusions on CG issues  FSTB Corporate Action Plan  SCCLR CG proposals (phase 2)  Code on CG Practices & requirement of CG Report  Amendments to Listing Rules  Enshrine key Listing Rules in statute  Regulation of sponsors & IFAs  Regulation of accounting profession  Code on CG Practices & requirement of CG Report  Amendments to Listing Rules  Enshrine key Listing Rules in statute  Regulation of sponsors & IFAs  Regulation of accounting profession

4 In particular, major CG reforms have been implemented recently Code on CG Practices & CG Report Make reference to UK Combined Code Comply or explain approach Amendments to Listing Rules related to CG issues Increase minimum number of INEDs from 2 to 3 Mandate the requirement of establishing an audit committee which comprises non-executive directors only Strengthen the rules governing notifiable transactions and connected transactions Mandate the disclosure of individual directors’ remuneration on a “named” basis Require any subsequent refreshments of the general mandate be subject to independent shareholders’ approval

5 Enshrine key Listing Rules provisions in statute Consider to enshrine the following provisions: Regular financial reporting obligations of listed companies Disclosure obligations in relation to corporate transactions (particularly connected transactions) Obligation to disclose price-sensitive information Regulation of sponsors & IFAs Clarify the role and responsibilities of sponsors and IFAs (e.g. definition of independence & expectation on due diligence) Regulation of the accounting profession Establish the Audit Investigation Board (AIB) Establish the Financial Reporting Review Panel (FRRP) In particular, major CG reforms have been implemented recently (cont’d)

6 Current status in HK Major CG reforms taken place CG regulations in HK broadly aligned with international standards & best practices Market players digesting and implementing new requirements Going forward Promote a compliance culture – CG a matter of ethics, not box-checking Enhance monitoring and enforcement Conclusions

7 Thank you