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HKIoD Corporate Governance Scorecard Project

Organized by:

Sponsored by :

Corporate Governance Development Foundation

Executed by :

CityU's research team led by Prof Stephen Cheung,Professor (Chair) of Finance

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Research Committee

• Coordinator– Prof. Stephen Y L Cheung (City University of Hong Kong)

• Members– Dr. J. Thomas Connelly (Chulalongkorn University)– Dr. Piman Limpaphayom (Chulalongkorn University)– Ms. Ping Jiang (City University of Hong Kong)

• Research Assistants– Mr. Andy Lau (City University of Hong Kong)– Mr. Chung Cheong Wing (City University of Hong Kong)– Mr. Ho Ka Ho (City University of Hong Kong)– Ms. Jan Chan (City University of Hong Kong)– Ms. Louise Zhang (City University of Hong Kong)– Mr. Patrick Tsang (City University of Hong Kong)

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Research Methodologies I

• Survey results based on publicly available information

• HSI, HSHKCI, HSCCI, and HSCEI constituent stocks

• Based on information disclosed in 2005• 174 major companies are covered

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Surveyed Companies I (as at 12/2005)

Air china (753) CHALCO (2600) China Power (2380) CITIC Resources (1205)

Allied Group (373) Chen Hsong Hldgs (57) China Res Land (1109) CKI Hldgs (1038)

Angang Newsteel (347) Cheung Kong (1) China Res Logic (1193) CLP Hldgs (2)

Anhui Conch (914) China COSCO (1919) China Res Power (836) CNAC (1110)

ASM Pacific (522) China East Air (670) China Resources (291) CNOOC (883)

Bank of E Asia (23) China EB Ltd (165) China Shenhua (1088) CNPC (Hong Kong) (135)

Bankcomm (3328) China Insurance (966) China Ship Dev(1138) COFCO Int’l (506)

Beijing Airport (694) China Life (2628) China South Air (1055) COSCO Pacific (1199)

Beijing Ent (392) China Mer Hldgs (144) China Telecom (728) CR Peoplesphone (331)

BOC Hong Kong (2388) China Mobile (941) China Travel (308) CSCL (2866)

Brilliance Ent (1114) China Netcom (906) China Unicom (762) Dan sing (440)

BYD Co (1211) China Oilfield (2883) Chinese Est H (127) Dan Sing Banking (2356)

Café de Coral H (341) China Oversea (688) CIFH (183) Datang Power (991)

Cathay Pac Air (293) China Pharma (1093) CITIC Pacific (267) Denway Motors (203)

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Surveyed Companies II (as at 12/2005)

Dynasty Wines (828) GZI Transport (1052) Huadian Power (1071) K. Wah Int'l (173)

Esprit Holdings (330) HAECO (44) Huaneng Power (902) Kerry Ppt (683)

FE Consort Int’l (35) Hang Lung Group (10) Hutch Harb Ring (715) Kingway Brew (124)

FIH (2038) Hang Lung Ppt (101) Hutch Telecom (2332) Kowloon Dev (34)

First Pacific (142) Hang Seng Bank (11) Hutchison (13) LCH Bank (1111)

Fong's Ind (641) Henderson Inv (97) Hysan Dev (14) Lenovo Group (992)

Fountain Set (420) Henderson Land (12) i-Cable Comm (1097) Li & Fung (494)

Fubon BK (HK) (636) HK & China Gas (3) ICBC (Asia) (349) Lifestyle Int’l (1212)

Giordano Int'l (709) HK&S Hotels (45) IDT Int'l (167) Liu Chong Hing (194)

Glorious Sun (393) HK Electric (6) JCG Holdings (626) Luen Thai (311)

Great Eagle H (41) HK Ferry (Hldgs) (50) Jiangsu Express (177) Maanshan Iron (323)

Guangdong Inv (270) HKEx (388) Jiangxi Copper (358) Melco Int’l Dev (200)

Guangshen Rail (525) HKR Int'l (480) Johnson Elec H (179) Miramar Hotel (71)

Guangzhou Inv (123) Hopewell Hold (54) K M Bus Hold (62) MTR Corporation (66)

Guoco Group (53) HSBC Holdings (5) K Wah Cons (27) New World Dev (17)

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Surveyed Companies III(as at 12/2005)

Next Media (282) Shanghai Ind H (363) Solomon Systech (2878) Vitasoy Int'l (345)

NWS Hldgs (659) Shanghai Pechem (338) Swire Pacific A (19) Vtech Holdings (303)

OOIL (316) Shangri-la Asia (69) Swire Pacific B (87) Weiqiao Textile (2698)

Oriental Press (18) Shenzhen Express (548) TCL Int'l Hold (1070) Wharf Holdings (4)

Pac Century Ins (65) Shenzhen Int'l (152) Techtronic Ind (669) Wheelock (20)

Pacific Basic (2343) Shenzhen Invest (604) Texwinca Hold (321) Wheelock Prop (49)

PCCW (8) SHK Ppt (16) Tianjin Dev (882) Wing Hang Bank (302)

PCPD (432) Shui On Cons (983) Titan Petrochem (1192) Wing Lung Bank (96)

PetroChina (857) Shun Tak Hold (242) TPV Technology (903) Yanzhou Coal (1171)

PICC P&C (2328) Singamas Cont (716) Travelsky Tech (696) Yizheng Chem (1033)

Ping An (2318) Sino Hotel (1221) Truly Int'l (732) Yue Yuen Ind (551)

Regal Int’l (78) Sino Land (83) Tsingtao Brew (168) Zhejiang Express (576)

SaSa Int'l (178) Sinopec Corp (386) TVB (511) Zijin Mining (2899)

SCMP Group (583) Sinotrans (598) Varitronix Intl (710)

SH Electric (2727) Smartone Tele (315) Vedan Int’l (2317)

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Objectives of Corporate Scorecard for Hong Kong Listed Companies

Encourage adoption of best practiceof corporate governance in Hong Kong through a systematic evaluation of current practices

Define a methodology/ framework to assess corporate governancepractices in Hong Kong

Develop specific criteria and a measurement tool to evaluate individual companies

Set up processes to evaluate corporate governance of Hong Kongcompanies on an annual basis

Our objective

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Research Methodologies II

• Avoids subjectivity bias• Not dependent on companies’

willingness• Written request was sent to

individual companies. Only a few companies supplied us with full information

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Consistency

• Each company was rated by two different research assistants

• The overall results were cross-checked by the research team

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Scorecard Followed The Five OECD Corporate Governance Principle

OECD principleNumber of questions & sub-questions

A. Rights of shareholders

22

B. Equity of shareholders

13

C. Role of stakeholders

9

D. Disclosure and transparency

32

E. Board responsibilities

45

121

• OECD is internationally recognized

• HKEx guidelines comprehensively covered

• 174 public companies surveyed

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Positive Correlation between Corporate Governance Index and Company Valuation

50 55 60 65 70 75 80 85 90 950

1

2

3

4

5

6

7

8

9

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Corporate Governance Score

Correlation=0.05, Significant at 1% level

Mar

ket t

o B

ook

Rat

io

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Market Valuation by Corporate Governance Score Quartile

2005 Market to Book Ratio vs CGI Ranking

Mar

ket t

o B

ook

Rat

io

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Improvement of CGI by Sections

Section/ Year 2005 Mean 2002 Mean

A 71.47 53.42

B 71.01 75.90

C 40.21 54.32

D 89.47 62.34

E 69.50 45.81

CGI 70.87 61.02

CGI increase by percentage 16.14%

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Improvement of CGI Compared with 2002

Improvement Frequency

-6-0 10

0-5 23

5-10 40

10-15 36

15-20 18

>20 6

Improvement of CGI compared with 2002

10

23

4036

18

6

0

5

10

15

20

25

30

35

40

45

-6～0 0～5 5～10 10～15 15～20 >20

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Corporate Governance Performance by Indices

Weak

Strong

50

55

60

65

70

75

80

85

90

95

Scor

es

All HSCCIHSCEI

HSI

HSHKCI

Range

Mean

Weak

Strong

50

55

60

65

70

75

80

85

90

95

Scor

es

All HSCCIHSCEI

HSI

HSHKCI

Range

Mean

Weak

Strong

Weak

Strong

50

55

60

65

70

75

80

85

90

95

Scor

es

All HSCCIHSCEI

HSI

HSHKCI

Range

Mean

50

55

60

65

70

75

80

85

90

95

Scor

es

All HSCCIHSCEI

HSI

HSHKCI

Range

Mean

HSCCI (恒生香港中資企業指數) HSCEI (恒生中國企業指數) HSI (恒生指數) HSHKCI (恒生香港綜合指數)

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Corporate Governance Performance by Industries

50

55

60

65

70

75

80

85

90

95

Scor

es

Range

Mean

IndustrialAll Properties Finance Utilities ConsolidatedEnterprises

Hotel &Miscellaneous

Weak

Strong

50

55

60

65

70

75

80

85

90

95

Scor

es

Range

Mean

IndustrialAll Properties Finance Utilities ConsolidatedEnterprises

Hotel &Miscellaneous

Weak

Strong

Weak

Strong

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Corporate GovernancePerformance by Categories

A: Rights of Shareholders (股東的權利)B: Equitable Treatment of Shareholders (對股東的公平待遇) C: Role of Stakeholders in Corporate Governance (利益關係團體在公司治理中扮演的角色)D: Disclosure and Transparency (公開與透明度)E: Board Responsibilities (董事會的責任)

0

10

20

30

40

50

60

70

80

90

100

Scor

es

All A B

C

D

E

RangeMean

0

10

20

30

40

50

60

70

80

90

100

Scor

es

All A B

C

D

E

RangeMean

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A. Rights of Shareholders (股東的權利)Improvements:• Improve the quality of

Notice to Call for Shareholders Meeting

• Attendance of all Board members, Esp. Board Committee Chairs

92.63

71.47

49.19

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B. Equitable Treatment of Shareholders(對股東的公平待遇 )

Improvements:• Increase influence of minority

shareholders to the Board• To use cumulative voting in the

election of board members• To facilitate voting by proxy

95.16

51.61

71.01

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C. Role of Stakeholders in Corporate Governance

(利益關係團體在公司治理中扮演的角色)Improvements:• Disclose more details on the

role of supplier/business partner

• Give more details on the environmental issues in its public communication

40.21

8.1

95.71

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D. Disclosure and Transparency(公開與透明化 )

Improvements:• The information in website’s

– Shareholding structure – Organizational structure

• To disclose the management’s shareholding

• Communication with public – Analyst briefing (s)– Press conference (s)/ press

briefing

98.77

72.71

89.47

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E. Board Responsibilities(董事會的責任 )Improvements:• Separate the role of the

chairman and CEO• A set of writing the code of

ethics • Setting up the Nomination

Committee – Role and responsibilities– Performance and meeting

98.99

31.18

69.50

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Results

• NOT finger-pointing exercise• Important input for policy-makers,

companies, and the public • Score for individual companies

will not be made public

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Top 10 Highest CGI Scored Companies(by alphabetical order)

• BOC Hong Kong (2388)• CLP Hldgs (2)• HKEX　(388)• HSBC Hldgs (5)• Hang Seng Bank (11)• Hysan Development (14)• Li & Fung (494)• MTR Corporation (66)• Shenzhen Express (548)• Solomon Systech (2878)

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~ END ~

HKIoD Corporate Governance Scorecard ProjectResearch CommitteeResearch Methodologies ISurveyed Companies I (as at 12/2005)Surveyed Companies II (as at 12/2005)Surveyed Companies III(as at 12/2005)Objectives of Corporate Scorecard for Hong Kong Listed CompaniesResearch Methodologies IIConsistencyScorecard Followed The Five OECD Corporate Governance PrinciplePositive Correlation between Corporate Governance Index and Company ValuationMarket Valuation by Corporate Governance Score QuartileImprovement of CGI by SectionsImprovement of CGI Compared with 2002Corporate Governance Performance by IndicesCorporate Governance Performance by IndustriesCorporate Governance Performance by CategoriesRights of Shareholders (股東的權利)B. Equitable Treatment of Shareholders(對股東的公平待遇 )C. Role of Stakeholders in Corporate Governance(利益關係團體在公司治理中扮演的角色)D. Disclosure and Transparency(公開與透明化 )E. Board Responsibilities(董事會的責任 )ResultsTop 10 Highest CGI Scored Companies (by alphabetical order)