In 1991, Bill Wang FCIS FCS took a one-way ticket from China to the US. CSj traces his long and interesting route to his current role as Head of Group Listings, Asia, and Company Secretary, Hong Kong, for Standard Chartered Bank.
Thanks for giving us this interview. Could we start by discussing your early years in China?
‘Yes. I was born and raised in Shanghai and lived in China until I was 23 when I finished my law school in Shanghai. I think that experience – growing up in a country where the government controlled almost everything – has been important for my own evolution of thinking. The key features of that way of urban life has certain attractiveness: you don’t have to worry about your job security (if you have one), you don’t have to worry about efficiency or productivity. There would be a kindergarten and all sorts of social welfare programmes in your work unit. You would be looked after in all aspects of your work and life – even your marriage could be arranged or at least approved by your work unit.
In reality, however, shortage of food and supplies, ration coupons and long queues for any consumer products were common features of daily life. Looking back, those were harsh years but we were made to believe that our system and social institutions were the best in the world. That soon turned to disillusionment when China started to open up to the rest of the world and the younger generation got exposure to the lifestyle of capitalist societies through various channels. Interestingly, when I was at law school in China, it was at the height of the Ronald Reagan/Margaret Thatcher era in the West. The US and the UK were privatising the state sector and cutting back on social welfare. Shareholder capitalism, the idea that the sole purpose of enterprises should be to maximise shareholder value, and hardly anything else, was in its heyday.
When I first encountered Milton Friedman’s ideas about autonomy of entrepreneurship, free market and minimum government intervention, they seemed both refreshing and appealing. Was this not what China needed to improve its productivity and efficiency and to improve the lifestyle of its people? Ironically, it seemed to me that Western societies could teach us a lot about socialism.
In some ways, China was bringing in market-oriented reforms – the government was reducing state holdings in the state-owned enterprises and opening up, on an experimental basis, limited private ownership and relaxing state pricing control. The incentivising power of being better off through hard work, a bit of luck and some small investment of capital could not be underestimated. People began to adjust to the transition the country was experiencing in terms of wealth redistribution and social status realignment.
Then came 1989, however, and the slightest hint of capitalism was again seen as dangerously liberal. In fact, one of the accusations against the then Communist Party Chief, who was ousted in 1989, was that he met Milton Friedman and Friedman gave him advice on how to run a free-market economy.
Life once again became pretty grim in China immediately after 1989. People who could leave did leave the country to the great envy of others. I got my TOEFL score as high as I possibly could and received a full scholarship from a University in the US. Walking passed border control, with my boarding pass in my hand, I thought to myself this was in every sense a one-way journey – that was late 1991.’
Did life in the US live up to your high hopes?
‘The biggest cultural shock when I first arrived in the US was not language or the local customs – I got myself well prepared for that. I was quite surprised to see a huge portrait of Karl Marx on the wall of my professor’s office. Karl Marx, who had of course predicted the ultimate death of capitalism, was indeed a hero for many serious scholars in the West. I asked myself why.
I then received another scholarship to attend the law school at the University of Virginia where Karl Marx was not mainstream – law and economics and Jeffersonian state autonomy against federal power was. Then I realised what freedom of expression really meant. In a free society, people can hold all sorts of ideas, however extreme, and freely express them. People can freely debate whose ideas are more plausible and feasible, Karl Marx or Adam Smith, for instance. But crucially, they do not have the freedom to coerce others to accept their ideas.
When I graduated, I started working for an international law firm doing legal work in the corporate and capital markets area – IPOs, financial products, securitisation deals, etc, serving the biggest names of investment banking.’
That must have been quite a contrast to your life in China.
‘Most definitely. Having come from a state-controlled country, I now found myself experiencing capitalism in its most extreme form. I’d never heard of any of these concepts, products or terminologies in China. The securitisation deals – packaging things like mortgage payments into tradable securities – had just become bread and butter products in the US. These types of deals were eventually copied in London and in Hong Kong.’
Securitisation, particularly of mortgage assets, was one of the causes of the 2008 global financial crisis, did you begin to have doubts about free-market capitalism?
‘When I started out in this kind of work I was 28 years old and I was pretty excited about being in the US and having exposure to these things. Of course, I was a junior associate at the time, so my role was actually very boring. I was managing the documents and logistics which ultimately led to a typical closing binder of 60 to 70 key documents – contracts, rating agency letters, legal opinions, disclosure documents, that sort of thing – all interdependent on each other to hold the deal together and make it work. I would be working to strict deadlines so the deals could be done in the “market window” and be priced rightly, so the work was a stress test to my physical health – to say the least.
But there were intellectual rewards to the job. I was learning a lot about the securities, banking and commodity regulations, and about how credit enhancement, overcollaterisation and liquidity facilities work. My senior partners signed off on the documents and I suppose the thinking at the time was that the documentation was bullet proof and my clients were well protected by the legal mechanism we had built in. On the big picture front, individual products might go down but the assumption was they wouldn’t all collapse at the same time. The fact that a particular product was “AAA” rated by the rating agencies would give the parties extra comfort.
Also, these products were being targeted at the so called ‘QIBs’ – the qualified institutional buyers. The idea was that the QIBs could fend for themselves, so there were more relaxed rules for these products. As later events showed, even the most sophisticated institutions could be trapped into buying instruments that would ultimately get them into trouble.
I also did some traditional IPO work and I preferred that work because you could show investors what they were getting into. With the securitisation deals, the underlying assets were often themselves financial products that had been repackaged so many times that you didn’t really know what was being sold. In the IPO scenario you would visit the factory or the offices, you would interview the management and speak with their staff. You would look at their competition and ‘kick the tyre’ as we used to say – you would do the necessary due diligence in the most tangible sense.
Looking back, it is clear that few people were asking the big picture questions. As you say, subsequent events showed that there was a systemic risk. While all of these products may have seemed to be individually fine, collectively, if there was a widespread market downturn, they were vulnerable to, and generated, a systemic risk.’
Where do you position yourself now between the two extremes you have described – the state-planned economy of your childhood, and the laissez-faire capitalism of the Reagan/Thatcher era?
‘I don’t think we could possibly go back to the scenario where the government controls and is accountable for everything – that model has failed. However, the swinging to the other extreme where the market dictates everything also has its problems, especially in the areas where the market sees no immediate return on investment.
When I first went to the US, I was mentored by a local lawyer who introduced me to the public defenders office in Philadelphia. That was my introduction to low-income America – the broken families and schools, the crime, the drugs, the guns, etc. It was an eye-opening experience and it was hard to believe that this was happening in the wealthiest nation in the world. In a free society where competition is cherished, should we encourage the winner-takes-all approach, or should we provide minimum protection and a second chance to those who lose out in the fierce competition, without killing the incentive to be ultimately self-reliant? I am not a philosopher or a social scientist, but this topic has been debated over the centuries and is of course very pertinent to the place that Milton Friedman called the freest economy of the world – Hong Kong, my new home since 2001.
Hong Kong is still running on the general model of big market and small government. Hong Kong is viewed as having a business-friendly environment, but it also has all the advantages of a developed infrastructure and social institutions. The biggest advantage is the deeply embedded rule of law and low level of corruption. Moreover, the close cultural and economic ties to the Mainland makes it a unique and user-friendly version of the rising and powerful China for people coming from other parts of the world.’
Do you think Hong Kong has the right approach to regulation – in particular, do you support the trend towards principles-based regulation?
‘In the key areas of the portfolio that I am responsible for, I find the securities regulators here, the Exchange for instance, are pretty good at listening to the market, encouraging a partnership rather than an adversarial relationship between the market and the regulators. On the ground, you have a good sense of which regulations achieve their goals and those which end up just generating a “tick the box” scenario.
I applaud the Exchange for the approach it has been taking. It has transformed itself from being a bureaucratic agency to being both a regulator and a service provider to the financial markets in Hong Kong. It has taken a much more engaged approach – pre-consulting on amendments to regulation, consulting and then post-consulting. This means that different viewpoints are debated and considered, and where controversy still exists, people at least understand the rationale of both sides.
I also support the other trend you mention – the shift towards principles-based regulation. The advantage of this approach is that it puts more emphasis on corporate self-regulation. Companies need to internalise the regulations as part of their daily conduct. Unless they fully embrace the rationale behind the regulations, then their purpose will be lost. Prescriptive rules can only go so far. There are a lot of smart market players out there and if they want to get around the regulations they can and will – which would make the regulators disproportionately busy in plugging all the technical loopholes rather than focusing on the main purposes of the rules.
Companies need to develop a “corporate conscience”. They need to ask the big picture questions – are we doing something useful for society? Are we offering useful products that make people’s lives better? Ultimately are we creating a social utility or creating a social hazard? Our tagline at Standard Chartered is: “here for good”. These days banks are criticised for so many things, scandals involving money laundering and financial crime have meant that we have to be very aware of the reputational risks attached to how we do things.’
We have digressed from your own story – what happened after your stint in the US?
‘I was fortunate to be working for an international law firm that gave me training during my junior years in New York, then posted me to London and then to Hong Kong, though still doing US securities work.
When I arrived in Hong Kong in 2001, China was a different place from the one I had left 10 years earlier. I felt that my real gap was China legal knowledge and practice. As I mentioned, I had done a law degree in China but that was not very difficult – at that time there were not many laws! So I thought, if I’m in this part of the world, I need to pick that up. From 2002, I worked for international law firms in China-oriented corporate finance.’
What motivated you to leave private practice and join Standard Chartered?
‘I’d been serving my investment and commercial banking clients in private practice and all the firms I’d worked for had been on Standard Chartered’s legal panel. I was curious about what was happening on the client side. One day I got a call from the Asia Head of Legal and Compliance at Standard Chartered, asking me to join his team. I hesitated. After all, I had been working for law firms for the past 10 years or so, and I was on a partnership track.
Moving to Standard Chartered was a good decision, however. It has given me excellent opportunities and the work has been interesting and varied. When working for a law firm, if you read and write Chinese, you tend to end up doing China work, but I didn’t want to specialise in one country, although my first big project at Standard Chartered was to lead the conversion of its China operations into a China incorporated subsidiary.
From that point onwards, I was leading projects in many other Asian jurisdictions, Korea, Singapore, Taiwan, Vietnam, and Nepal. I was also the lead in-house counsel for the listing of the bank in India. That experience helped me understand business and internal process and control much better. I understood what compliance really means. A lot of legal work is about complying with the law, but this was a very different perspective. Compliance is not simply a matter of following the rules, you need to think through what is right and wrong rather not just what law and regulation says.’
Since 2010 you have been serving as the company secretary for Standard Chartered’s Hong Kong banking subsidiary and for its holding company’s Hong Kong listing. Do you enjoy this aspect of your work?
‘Personally, I think it’s an interesting time to be a corporate governance professional. The company secretary role used to be associated with filing and administrative work, and while those are still very important technical areas of the job, over the years the role has developed into a more trusted advisory role to the board, the board chairman and the executives.
Working in a principles-based regime does not make things easier, often it would be easier to have prescriptive rules so that you just comply and tick the box. In a principles-based regime, you need trained professionals to translate the principles into workable policies and procedures for the organisation. That is a more difficult but more interesting job than being a simple paper pusher, but at the same time it places greater emphasis on the competence and professionalism of the individual company secretary who discharges these responsibilities. The HKICS is doing a good job, not only in raising the awareness of corporate senior leadership about the value a good company secretary can bring, but also in taking concrete steps to raise the standards and provide the necessary training and mentorship to younger members of the profession.’
One final question. China has liberalised a lot economically, but not politically, since you left the country in 1991 – what do you think the future holds for the country?
‘I don’t have a crystal ball, but I think the personal experiences of the country’s leadership are very relevant when it comes to Chinese politics. The current generation in leadership were victimised in the cultural revolution – they know that China cannot go back to that stage. I don’t think it would be too far fetched to imagine that the next generation of leaders could include someone with a degree in law or political science from Ivy League schools, or someone with Oxford or Cambridge experience.
The personal experience of the leadership has a huge impact on its general thinking and I don’t think we should underestimate the impact of that on China’s future policy orientation.’
Bill Wang was interviewed by Kieran Colvert, Editor, CSj.