As cultural homogenisation sweeps the planet, this month’s well travelled interviewee, Stuart Crosby, Chief Executive Officer, Computershare Ltd, warns against assuming that cultural differences have been laid to rest by globalisation – they still have the power to catch you out in places you least expect them to.
You work in a great many different jurisdictions, particularly in Asia – which country is the most challenging to do business in?
‘That is a really hard question to answer – different countries are challenging in different ways. At the moment the US and EU are challenging just because of the business environment. We have a business in Russia where we recently had to deal with a big fraud that our insurers paid out on. Someone came in with a proper Russian passport and identified himself as a major shareholder in one of our clients, and had us transfer his shares into an account in a depository in his name. Eight months later another person came in and said where have my shares gone? So Russia is a challenging environment with a less evolved legal system than lots of places.
Obviously there are places where the rule of law is much better established than others, and there are places like India which has a fabulous rule of law but the machinery grinds exceptionally slowly, so it ends up not being especially useful. Then you go to places like the US where the rule of law is so developed that you end up with all sorts of spurious claims made against you which you have to commit a lot of resources to defend.
So I don’t think it would be fair to say that some countries are more challenging than others. Everywhere has its challenges, but I don’t think there is anywhere that we despair of.’
Can we talk a little about Computershare’s presence in China – am I right that the state is the only official share registrar in mainland China?
‘I guess my exposure to this goes back to my time at the Securities and Futures Commission (see ‘Career notes’ below). I was lucky enough to be here in 1993 when Shanghai Petrochemical and Tsingtao Brewery were among the first H-share listings in Hong Kong. At that stage the Hong Kong stock exchange set up its own registry company as it couldn’t persuade the Chinese government authorities that were in charge of the process that it was appropriate for a private organisation to keep the records for a Chinese public company. That is still the case and all shareholder records in China are kept by the China Securities Depository and Clearing Corporation (CSDCC).
The CSDCC is owned by the Shanghai and Shenzhen stock exchanges, but it is in many ways an extension of the regulatory apparatus. There are often interchanges of staff between the China Securites Regulatory Commission (CSRC), the two stock exchanges and the CSDCC. An old friend here used to describe it as “part of the broader machinery of government”.’
Is the CSDCC like the Central Clearing and Settlement System (CCASS) in Hong Kong?
‘The way its structure works is dramatically different to the way CCASS works. It keeps records of every investor in China. We keep something like 100 to 120 million shareholder records around the world, CSDCC keeps at least that number just within China. We employ 12,000 people around the world, they employ less than 1,000 people. One reason they can do that is because it’s all electronic. They leapt the legacy legal infrastructure and were able to establish a contemporary legal infrastructure.
But to come back to your question, while Computershare can’t be an underlying share registrar in mainland China, there are a few things we have been able to do. We have established a business in employee share plan administration, mostly for companies with listings outside China but Chinese businesses with Chinese employees. That has been a good business for us and really funds our infrastructure in China.
We also have a business that runs general meetings for Chinese companies which is an important part, but not the whole story by any means, of what a share registrar does for any public company client. The immediate need for that business came with A- and H-share convergence. Where we manage general meetings for A- and H-share companies, we need to work on their meetings both in Hong Kong and in mainland China. That’s a small but growing business.
We also have a proxy solicitation and shareholder analysis business. Where you have state-owned enterprises restructuring or merging, interested shareholders are excluded from voting on those transactions. This means that the independent shareholders have to approve those transactions, so we assist Chinese companies to work out who those people are and how to package their messages to them.’
Is the infrastructure transparent enough for you to get that sort of information in mainland China?
‘The infrastructure is very transparent although not everyone gets the benefit of that transparency. The regulators and the government will know who all the shareholders are, but not everyone else can get that information – usually not even the company itself.’
You mentioned Computershare’s work on employee share plans in mainland China – can you talk a little more about that?
Share plans are a really important business for us globally. We recently announced the acquisition of a European share plan business from Morgan Stanley. It has been a strong growing business for us over the last few years driven by a few things – such as the increased scrutiny of compensation structures, the move towards deferring more compensation and the move towards equitising more compensation. The regulation on compensation has increased to the extent that people who may have done it in-house are now looking for better and more robust structures.
It is also a business that sits very nicely alongside shareholder record keeping because the shares just move from one party to another. You still have to pay dividends and you still need to deal with voting rights whether the shares are within a plan or held directly by investors. In China it has been the companies that have overseas listings, especially in the US, the UK and Europe, which provide employee share plans, whether they are for a small group of senior executives or broad-based plans.’
Are the authorities in mainland China supportive of employee share plans – it would seem to be a good fit with Marxist ideology?
‘Within the companies that we have talked to there has been a clear understanding that it is politically a correct thing to be doing in terms of the traditional Marxist economic analysis, but there aren’t any of the concessional tax treatments you might find in other places.’
Do you think employee share plans improve staff motivation and long-term involvement?
‘Yes – we eat our own dog food as they say. Ever since Computershare became a public company in 1994, we have had a significant level of employee ownership and we still have a broad-based plan around the world. The amounts vary according to local regulations, but generally people can contribute up to US$3,000 per year, which we match so long as they stay with us for two years.
When I talk to people about their compensation they often talk about their salary, their pension and health benefits, but I often need to remind them that they can also get US$3,000 worth
of shares every year. People don’t always have it in their minds that this is accruing, but it is also a wonderful thing for them when they want to buy a car or a house. They then find that they have £10,000 tucked away which they didn’t really know they had. That makes a big difference. Outside of India where the economics are different, we’ve got around 50% participation in employee share plans across the workforce – in Hong Kong/ China it’s actually 83%.’
China has often been cited as a difficult culture for Westerners to understand – what has been your experience?
‘I find that in places like China, India, Africa, or Japan, you expect it to be culturally different and you end up being very careful about what you assume. I get myself into cultural trouble much more in markets where I forget what I have come to assume. So in the US and UK, people sound familiar – those have been the voices I’ve heard on television all my life – and I assume away the cultural differences that are still there and that can trip you up.
If your client in the US has a problem he will ring you up and shout at you about it. If you ask clients in the UK about how things are going, they will say “fine, but there’s just one niggle”. What that can actually mean is that they are seeking tenders from your competitor. I find in China that people are really quite open and direct about commercial matters. In the US you’re not supposed to make jokes in business. In the US, if you crack a joke in the middle of a tense negotiation, which is something that I’m used to doing in order to take the heat out of the situation, people think that you are not taking things seriously. In China people are much more comfortable with that.
Doing business anywhere you need to recognise that we all come from different backgrounds, we are all taught different things and follow different social and behavioural norms.’
What’s your view of the prospects for a global convergence towards internationally-recognised standards on corporate governance?
‘People now talk about corporate governance as relating to a whole lot of things around board structures and the way that they operate. I think that is important but if you really want to understand governance you need to go a step below that. It’s really about how organisations set themselves up to protect the interests of their investors and balance the managers’ versus owners’ potential conflicts of interests.
There are very dramatic differences in the ways boards are set up in different markets – look for example at the UK, Germany and the US. Germany has two-tier boards. The UK has boards that
are, if compared to the US, pretty accountable to shareholders.
In the US, until very recently, the only way you could nominate directors, without spending huge amounts of money, was for the nominations to come from the board. US boards were much more closed and self-perpetuating.
So I don’t think you can talk about convergence in what boards actually do without understanding that different boards actually have quite different roles to play and that the fundamental architecture of the corporation is different from one place to another. In accounting, where money is money, it is much clearer and easier to apply the same standards across a range of different places. In governance, without actually changing the way that corporate law works in different places, to try to impose convergence would be to miss the texture and complexity of it.
All of that said, there is clearly more commonality of thought around a range of topical governance issues such as the role of audit committees, the way compensation structures for senior executives are established and the tenure of directors. With all of those issues I think that there is at least a framework that lets people think about it rationally and on a more consistent basis globally.’
Do you think we will ever see the emergence of an international regulator with powers to regulate multinational companies?
‘There is an organisation that thinks it is that already – the Securities and Exchange Commission (SEC). You look at the debate about access to audit papers in China. The SEC has been reluctant to limit the application of its laws to its geographic boundaries and for a long time has been reluctant to see national borders as borders to its activity.
At the start of my regulatory career there were separate state regulators in each of the Australian states. To actually get a single national structure took 15 years to really achieve, and that was dealing with a single digit number of jurisdictions which shared a common legal and political infrastructure and had enormous motivation to achieve convergence. To do that across the disparity of global jurisdictions would be much, much more ambitious. However, regulatory oversight of global organisations and trying to catch all the risks regardless of where they are located, is clearly the biggest regulatory challenge at the moment.’
You lived in Hong Kong in the early 1990s when you were the Director of Enforcement of the Securities and Futures Commission. What are your feelings about Hong Kong?
‘I love Hong Kong. When I was here I used to live out in Pok Fu Lam just down from the hospital looking out across the Lamma channel. I used to go down and catch a minibus or a cab, whichever came first, and there was this one rainy morning where this bloke stopped and asked did I want a lift. We had a good chat. He’d been in Hong Kong since the late 1940s just after the war. I said to him “don’t you reckon it has changed”? And he said “Stuart, it has changed every five years since I’ve been here”.
Change is a constant in Hong Kong more than just about anywhere – it continues to change and it continues to evolve and that is pretty exciting. As with anything, there are some changes that you like more than others and some that annoy you more than others, but you can’t hold the tide back. There has always been energy in Hong Kong, and there has been wave after wave of change and new focuses such as manufacturing and then services as Hong Kong has reinvented itself over the years. Hong Kong people are fabulously robust and innovative.’
Are company secretaries important stakeholders for Computershare?
‘Company secretaries are in most cases our key contacts with our clients, so in my job you end up knowing a great number of company secretaries and I have great respect for the important role they play, especially in public companies. It’s also been interesting to observe the evolution of the company secretary role over time. I think the role is now much more strategic than it has been in the past and you end up with a different sort of person doing the job for that reason.’
In your role you need to keep a close eye on global trends, can you predict what will be the big trends in the medium and long term which company secretaries should keep an eye on?
‘One of the things that I think has stood Computershare in really good stead over its life as a corporation, and especially over the last five challenging years, is that we never did make big grand plans that assumed particular things about the world. We figured that we weren’t going to be good at that so we worked hard to be flexible and to be able to respond to whatever the world threw at us. That has been an asset over the last few years. What it means though is that we tend to avoid grand strategic questions like this one!’