In the public interest – John Brewer, HKICS Prize Winner 2012
The annual HKICS Prize celebrates the achievements of leaders of the Chartered Secretary profession. The 2012 prize was awarded to HKICS past president John Brewer FCIS FCS, who played a pivotal role in building up the profession in Hong Kong during critical phases of its development. In this interview with CSj, he argues in favour of speaking out on issues of public interest.
What are your feelings on receiving the HKICS prize?
‘I’m very proud, very happy and I’m thrilled.’
Can we talk about your personal background? I believe you studied law in the UK?
‘I studied law intending to read for the Bar. I had an offer of pupillage and then tenancy but I hadn’t realised how much of a financial burden it would be to my parents and, quite by accident, ended up as trainee company secretary with British Aerospace (BAe). I joined just after nationalisation but only three years later the company was selected as the initial denationalisation of the first Thatcher government and I worked on the IPO. I was then posted to the Australian subsidiary for two years. I had just turned 25 and was given a three-bedroom house with swimming pool, car and enough tax-free allowance to help pay the mortgage for the new house I had just purchased in the UK. Perhaps missing out on the Bar wasn’t so bad after all!’
Did you take the Institute of Chartered Secretaries and Administrators (ICSA) exams?
‘Yes, though the Australian posting meant I had to study to sit the taxation paper overseas. Twice, because Park Crescent [headquarters of the ICSA in London] had sent the first exam paper out by cabin steamer and it failed to arrive in time for the exam.’
You moved to Hong Kong in 1984?
‘BAe’s statutory work was undertaken at head office so those of us working in the Divisions handled just about everything expected of a company secretary except filing returns with Companies House. At 27, I arrived in Hong Kong to run the company secretarial department of a leading firm of solicitors where 99% of my time was spent managing a department of staff who filed returns with the Companies Registry and drafted routine board and general meeting minutes. The interesting 1% involved four listed companies and special transactions. Those were certainly the kind of ‘interesting times’ my UK friends had cautioned me about – the Hang Seng Index had dipped to less than 700 points, a Malaysian banker had been murdered in a Central District hotel, a senior solicitor was then found at the bottom of his swimming pool and one of the territory’s most famous companies announced it would redomicile to Bermuda. And, as it turned out, it was the year in which Bob Tricker coined the term “corporate governance”.’
You joined the HKICS in 1986 – I suppose it must have been a very different body back then?
‘It certainly was – presidents back then didn’t have to be able to sing! The committee was then run on a shoestring. Park Crescent had banked student and member subscriptions and remitted a few breadcrumbs for us to pay for a very basic presence. I joined just after ICSA Council had resolved to devolve greater autonomy to the associations in Singapore, Malaysia and Hong Kong and a year ahead of the 1987 market crash, an event which presented the profession with a unique opportunity to make itself useful. Which we did.’
In what way?
‘Prior to the crash, the listing rules were very simple and not very demanding. After the crash a number of consultants were engaged by the Exchange to relook at the listing rules and we were able to get into that process and push very hard for the rules to require listed companies to have a company secretary. They had to have company secretaries previously but most companies would subcontract the work to solicitors’ firms and so they wouldn’t have an individual named in that position. We were pressing for the named company secretary to be an individual. I think the consultations following the crash were fortuitous and gave us the chance to make our voices heard. Like everything else in this town, if you can make yourself useful people will listen.’
You mentioned that ICSA Council had resolved to devolve greater autonomy to Hong Kong – can you talk a little about your part, as Chairman of the HKICS in the mid-1990s, in establishing the Institute as an autonomous body?
‘One of the devolution steps required us to incorporate a local guarantee company to hold Hong Kong assets. In 1994, and as a result of meetings with Yue Xiang, the Secretary of China’s Law Drafting Commission, we achieved two objectives (both with ICSA Council’s blessing) – we turned the guarantee company into a parallel local professional body and had Yue Xiang admitted as honorary member, a key step in helping us establish a Beijing office which was itself a first for any Hong Kong professional body.’
Do you think that the relationship with the ICSA is now on a more sustainable footing?
‘It was unfortunate that threats of excommunication towards HKICS over ownership of Hong Kong assets were raised soon after HKICS became a parallel professional body and it has been particularly irritating to see the same threats being pressed time and again over the past 20 years. However, I think the outcome of the requisitioned general meeting of December 2011 has settled that ICSA governance issue once and for all. Whether the remainder of the ICSA’s constituencies are professionally and financially secure will inevitably be up to the members concerned, as it will be for the China Division. We were mindful 20 years ago that the profession would need to demonstrate a useful role in “capitalism with socialist characteristics” and I believe that challenge will not be fully met for another 35 years. A lot of hard work lies ahead.’
Can you elaborate on that?
‘We knew that unless we did something to introduce the profession and maintain its relevance in the PRC, some function would develop to fulfil that role – corporate communications might take responsibility for the board minutes and communications to shareholders for example – which would ultimately leave our profession in Hong Kong marginalised and completely irrelevant. We had to do our best to persuade the PRC that we had something valuable to offer. At some point we will get swallowed up, but it’s important to make sure that we have some influence in the body that swallows us up. That was one of the reasons for establishing the HKICS as a parallel body. If we had just remained British flag-carrying members of a Hong Kong branch of the ICSA, we would have been left alone and we would have steadily become irrelevant.
One difficulty we have had, however, is that every three to four years we see a fresh group of UK Division faces on ICSA Council and they are learning all of this over again. Some of them don’t appreciate the full picture and try to undo everything without realising the good reasons why it has all been put together.’
Are you pleased with the way the relationship between the HKICS and board secretaries in mainland China is developing?
‘Absolutely, and full credit to today’s Council members for continuing to see this strategic initiative thrive.’
Perhaps you are best known for giving the profession a voice – you never shied away from commenting on governance issues. Is this the main legacy of your work with the HKICS?
‘Professional bodies have since medieval times been expected to respond to the public interest before that of their members and I believe we have always been able to do that.’
Some readers might be surprised by the idea that the HKICS is not there primarily to serve the interests of its members.
‘It is not a trade union. Professional guilds were protected and given royal charters in Europe in the middle ages because it was in the public interest. The brewers and bakers, for example, were given exclusivity — only their members could brew beer or bake bread — provided that the relevant body ensured that its members were trained to an appropriate level. It was a mutually rewarding arrangement. So the first and foremost objective of any professional body is the public interest over and above that of its members.’
You gained a reputation as something of a ‘gadfly’ because you were very outspoken on examples of unsatisfactory governance.
‘There were some egregious examples and we had sufficient strength of character to say so. Even today, 20 years later, people still remember me as the person who wrote an editorial for this journal [Company Secretary as it was then known] strongly criticising the HK$115 million of bonuses the directors of a listed company had awarded themselves. The editorial never actually appeared in the journal because it was printed in the South China Morning Post and was the catalyst for a climbdown by the directors – they repaid around $68 million of their bonuses. The editorial remarked that power comes with responsibility and that is of course equally true of our regulators. Measures to give statutory backing to disclosure requirements had already been far too many years in the pipeline and so some of the SFC’s top brass were more than a little irked at CSj’s “Super Regulator?” cover story of April 2007 in which I examined potential role conflicts within its enforcement division. But I think we are all a lot happier that it is now the independent Market Misconduct Tribunal and not the market regulator which will conduct proceedings to hear and determine alleged breaches.’
Can I ask your opinion on a current corporate governance issue which has been getting a lot of attention in the press – the proposed changes to the Companies Ordinance which would hide the home addresses and full ID numbers of directors and secretaries from public scrutiny?
‘There is undoubtedly a growing sense of paranoia over what is, and what is not, personal data but there shouldn’t be a problem with ID card numbers being reported because you need to be able to distinguish between directors with similar, or the same, names. However, some organisations rely on ID card numbers to verify your identity when you are on the phone and I can see why people are very sensitive about this issue. It wasn’t always that way of course – in its 1998/ 1999 Annual Report, the Standing Committee on Company Law Reform responded positively to calls from listed companies who complained of the burden of having to report their directors’ other directorships: “In November 1998, the Companies Registry completed a major exercise to expand the amount of data held on its computerised database… Once this expanded database is available for public search, it will be possible for the computer system to make the necessary cross-referencing with a director’s other directorships using the director’s Hong Kong Identity Card Number as the unique identifier… As a result, listed companies would not need to report changes of directorships which their directors hold in other companies”.’
Is there a public interest angle here?
Journalists and other groups have argued that this information is important for investigative journalism which keeps the market honest? ‘Frankly, I find this information useful when prosecuting market misconduct. Among other materials, I look at company returns and try to track down and verify connections just like any investigative journalist, so I would be handicapped if this information were not readily available. And when I say “available”, I think it should be viewable online for free because there is really no reason why it cannot be – the Registry’s net profits assisted the government’s embarrassment of riches last year to the tune of HK$216 million and that figure was 3.5 times the $61 million revenue generated from 3.2 million searches. However, in terms of fundamental transparency there are much more important issues to consider first. The privilege of incorporation comes at the cost of disclosure and I think it ridiculous that we are still unable to ban outright the use of corporate directorships. I have never heard a good reason for retaining corporate directorships and anyone researching a company who finds that it has corporate directors in the British Virgin Islands, for example, meets a dead end. This does nothing to assist transparency or accountability.’
The new Companies Ordinance will require companies to have at least one natural director?
But if that person is the owner’s typist just sitting there as a stooge and the real control is with those who are pulling the strings behind the corporate directors, how can we get to those who are accountable?
The second highest priority would be to require all companies to file their accounts. The fact that private companies in Hong Kong don’t need to file their accounts is backward. The cornerstone of limited liability is that you get it in return for disclosure, that goes back to the origin of the whole concept in the 19th century. If a private company goes to a bank to get bank facilities, the bank will want to see its accounts, if it doesn’t get that information then there’s no loan – it’s that simple. But what about regular creditors and employees? Companies in some sectors are required to file their accounts with a particular regulator, but if you are an employee or a creditor of a company that is not in one of those sectors, you will often have no idea of the strength (or otherwise) of the company you are working for, or doing business with.
The ID number issue should not obscure much more important issues to consider when talking of transparency.’
How do you think the Chartered Secretary profession will develop in the coming years?
‘Much of the answer to that lies in the hands of mainland regulators and their continued interest in how best to require deployment of governance skills. The mainland regulators have to be open to what we have to offer. They have to be willing to take the medicine as well – what we suggest may be difficult to swallow. They may be uncomfortable, but so far they seem to have been very happy. Ultimately it’s the user who benefits from what we have to offer.
Do you think the company secretary role will continue to evolve towards a corporate governance advisory role?
‘The essence of the secretary’s role is often encapsulated by the expression “corporate conscience”. I have been fortunate in my career to have been allowed to deploy that skill in very contentious circumstances without fear of losing my job.’
Can you talk about those circumstances?
‘Let me begin by saying the circumstances were exceptional. In 1996 I was working for a UK listed company headquartered in Hong Kong and the major shareholder was proposing to increase its interest from 49.9% to just over 50%. That shareholder was itself a US listed company and required to file under anti-trust regulations. We learned of this when we were asked to submit a response filing and I alerted the Hong Kong Chief Executive, an employee of the major shareholder, to the board’s duty to consider whether this constituted price-sensitive information but he was not particularly receptive.
Only days later I was in discussion with the Chief Executive and the Chairman who was visiting for a quarterly board meeting and the matter came up. The Chairman was far from pleased and asked me to meet him for lunch where we were joined by the entire non-executive board. I got dressed down for not having told them about this matter beforehand. I pointed out that I had only been on the board for about two months so I didn’t know where my support was. He said, “I am your Chairman, it’s with me!”’
This month’s cover story looks at whether having a reporting line to the Chairman rather than the Chief Executive helps prevent the company secretary from being ‘captured’ by the company’s executive.
‘Yes, I wasn’t reporting to the Chair, but he certainly expected to be kept informed. This is a potentially very difficult area for the company secretary – what you can’t do is risk the Chief Executive thinking that there is divided loyalty.’ B
ut you didn’t lose your job in the case you were describing?
‘No. As that particular saga continued into 1998, a new Chief Executive came in, again from the US shareholder, and I was exceedingly lucky to have his support in spite of the US shareholder’s own Chief Executive demanding my head.’
You have been involved in public service work – such as your work with the Standing Committee on Company Law Reform, the SFC’s plain language working group and as the judge’s panel chairman for the Exchange’s Best Disclosure Award – do you recommend this approach to your colleagues?
‘The profession excels in explaining to lawmakers what can and does actually happen in practice and so, yes, it remains vital that experienced senior members contribute towards debates over reforming and improving the statutory regime with which members grapple in their working lives. It was the plain language working group’s conclusions which led to much greater clarity in company announcements and that working group was itself set up in response to my observations arising out of the Best Disclosure Award. Long sentences of over 100 words might have met the disclosure requirements but they were barely comprehensible.’
Do you have any advice for young recruits to the Chartered Secretary profession?
‘Older hands will recall my counselling members against writing minutes of meetings which were not in fact held and revising draft minutes to the point where they no longer reflect what was in fact determined. Last year I had the unpleasant task of cross-examining the Secretary of a listed company and it was professionally embarrassing for him to have to admit that what he had recorded in board minutes was materially different to what had in fact happened.’
You were called to the Bar in 2002, are you enjoying life as a barrister?
‘I have to say this is the most rewarding part of my career so far. Not simply because I have been able finally to advise and practise as an advocate as I had originally wished, but because of the very special mutual professional respect and fraternity found in counsels’ chambers.’
What current projects are you working on – will you be writing a novel?
‘Perhaps, but for now I have to give The Law and Practice of Hong Kong Companies a significant update for its third edition.’
John Brewer’s interview was originally intended for publication in last month’s CSj, but deferred in light of his views on disclosure of ID card numbers.