Dr Gao Wei FCIS FCS(PE), Vice-President, The Hong Kong Institute of Chartered Secretaries, reviews the Institute’s work promoting good governance and facilitating cross-border compliance in Hong Kong and the Mainland.
As a leading international corporate governance professional organisation, the Institute has been committed to promoting good corporate governance concepts and practices, and enhancing the governance skills and status of governance professionals in Hong Kong and the Mainland.
Before Tsingtao Brewery became the first Mainland company to list on the Hong Kong Stock Exchange (HKEX) in 1993, the Institute had already been invited by the China Securities Regulatory Commission (CSRC) to provide advice, counseling and professional training to help Mainland companies list overseas. By referring to the company secretary system of Hong Kong, including job description, scope of duties and terms of appointment, the Institute assisted authorities in the Mainland to formulate the duties and requirements of board secretaries of Mainland companies looking to list overseas.
Since then, the Institute has continued its mission to promote professional developments in the Mainland. It established its representative office in Beijing in 1996. In 2004, the Institute launched the Affiliated Persons (AP) programme in the Mainland. I was in the first batch of board secretaries to join the AP programme. I decided to take, and then passed, the professional qualification examinations of the Institute in 2009 and launched my professional career in corporate governance.
Promoting cross-border compliance
After years of hard work, the Institute’s professional training is highly praised and recognised by the majority of listed companies and regulatory agencies in Hong Kong and the Mainland. The value of the platform and network provided by the Institute’s AP programme has also become increasingly recognised. At the same time, with the launch of the A+H listing model and the increase in director responsibilities and penalties by regulatory bodies in Hong Kong and the Mainland, major differences in regulatory approaches, resulting from the different legal systems and listing rules, started to appear. This poses challenges for the cross-border compliance work of board secretaries. In this context, the top priority of the Institute in the Mainland has been to reflect the thoughts of APs, to raise issues of common concern for listed companies to the supervisory authorities, to guide and encourage board secretaries to brainstorm new ideas, and to promote and strengthen the technical research capabilities of members.
In 2014, I was honoured to be elected as a Vice-President of the Institute to assist the Council with the implementation of the Institute’s Mainland strategy. In order to address the governance concerns of practitioners in the Mainland, and provide professional guidance to international professional institutions, we began setting up a research team to compile our Guidelines on Practices of Inside Information Disclosure of A+H Companies (the Guidelines) and other relevant practical guidelines. In 2017, the Institute established its Mainland China Technical Consultation Panel (MCTCP) to further strengthen practical research. I act as Chairman of the MCTCP and work with more than 10 members who are all senior members of the Institute, board secretaries and practising lawyers. We organised members and APs into research groups to carry out corporate governance related research projects, and to compile relevant practical guidelines to solve practical problems in members’ work, which built a consensus of members.
In 2012, I, together with PH Chik, the team’s legal adviser, and Kenneth Jiang FCIS FCS(PE), Chief Representative of the Institute’s Beijing Representative Office, as well as several senior board secretaries, started to compile and eventually issued the Guidelines (First Edition) in 2014. This is the first guideline in the industry that incorporates inside information control into the corporate internal control and management process. In 2019, following relevant changes in Hong Kong and the Mainland, the second edition of the Guidelines was released. Now we are working on the third edition of the Guidelines which we target to release in early 2021. At the request of regulatory authorities, we conducted research into regulatory aspects of the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect schemes. In February 2020, we submitted research reports to CSRC and the Shanghai and Shenzhen stock exchanges. We are now compiling our Guidelines on Practices of Connected Transactions of A+H Companies, which is planned to be completed by the end of this year to provide assistance to practitioners in solving complex practical problems in connected transactions in both Hong Kong and the Mainland.
At present, resolving corporate governance issues on a practical level is one of the most pressing problems in the world, a task made harder due to the complexity of corporate governance practices, and the different legal systems, political systems, capital markets, equity structures and cultures involved. No single governance model can solve all governance problems, but good corporate governance concepts and standards are gradually converging across the world, and corporate governance professionals are increasingly expected to follow these legal frameworks and standards to solve their own governance problems.
Mainland companies listed in Hong Kong need to follow relevant laws and regulations of both Hong Kong and the Mainland at the same time. They are faced with the differences in regulation under the civil law and common law approaches and the reality that regulatory authorities do not always grasp the cross-border practical issues. In this context, the Institute’s Mainland research is positioned to solve common problems encountered in listing practices on both sides. In order to lead the professional development of corporate governance, it is highly valuable to bring practitioners together to use their professional skills and collective wisdom to address practical challenges, and communicate with regulatory agencies in Hong Kong and the Mainland.
In 1994, the Special Provisions of the State Council Concerning the Floatation and Listing Abroad of Stocks by Limited Stock Companies (Special Provisions) and the Prerequisite Clauses for Articles of Associations of Companies Seeking for Listing Overseas (the Prerequisite Clauses) were released and implemented. At the time, these regulations made a historical contribution to standardising the governance of enterprises from the Mainland looking to list overseas. However, after 25 years of development, the governance level of Mainland companies listed overseas has greatly improved. The Company Law in the Mainland has undergone five revisions, while the Special Provisions and Prerequisite Clauses have not been revised. Some provisions of these regulations not only have serious restrictions on the capital transactions and development of overseas listed companies, but also violate the Company Law, which causes great compliance risks.
As early as 2009, we carried out research work on the revision of the Prerequisite Clauses, and submitted our Recommendations on the Revision of the Articles of Associations of Companies Listed Overseas to the former International Business Department of CSRC. In May 2014, the Institute and the Board Secretary Committee of the China Association for Public Companies (CAPCO) jointly established a research group. Based on an extensive collection of appeals made by H share companies, the group studied and drafted the Recommended Amendments to the Special Provisions and Prerequisite Clauses to Improve the Environment for H Share Companies Research Report. The report was formally submitted to CSRC by CAPCO and was approved by the leaders of CSRC, but it was temporarily shelved due to the revision of the Securities Law.
On 22 October 2019, the State Council approved CSRC’s request for instructions and issued the Official Reply of the State Council regarding Adjusting the Application of Provisions to Matters Including the Notice Period for Convention of Shareholders Meetings by Overseas Listed Companies. With the support of the International Cooperation Department of CSRC and the majority of H share companies, the MCTCP quickly established a research team, which published its Guidelines on Amendments and Practices of the Related Regulations on Notice Period for Holding Shareholder Meetings in the Articles of Associations of H Share Companies on 28 February 2020. This met the urgent need of H share companies and has been widely praised by our industry colleagues.
In the process of compiling these guidelines, we reached a number of conclusions. Theoretically, the required notice period for shareholders’ meetings can be 20 days under the new rules. However, in practice, due to various factors such as the approval time of the Stock Exchange, closing date of shareholder accounts and shareholder identification, the notice period for a general meeting of shareholders can only be shortened to 38 days, which surprised both CSRC and HKEX. Preparing the guidelines led us to the conclusions below.
- The Institute will use its professional platform in the Mainland to organise members, APs and related professionals to compile relevant practical guidelines. This research aims to meet the expectations of regulatory organisations and listed companies in and outside the Mainland and serve the Institute’s purpose of leading the development of corporate governance.
- The professional platform of the Institute can effectively bring together board secretaries and other corporate governance practitioners from Mainland and overseas-listed companies to solve problems of common concern. The Institute can rely on its members’ practical experience, knowledge and collective wisdom, to quickly complete practice guidelines of high quality.
- The Institute plays an indispensable role for professional institutions in responding to general concerns on behalf of the market, communicating with regulatory agencies in Hong Kong and the Mainland, and promoting the revision of relevant regulations.
Based on the above, and in response to the requirements of CSRC, we have recently consulted H share companies on the amendments to the Prerequisite Clauses and will report back to CSRC in the near future in order to assist them in revising relevant provisions and regulations.
Promoting the governance profession in the Mainland
The new Securities Law approved on 1 January 2020 in the Mainland explicitly stipulated that securities issued in the Mainland are subject to a registration system. The regulatory model has also undergone a major change. Relevant institutions and individuals involved in listing should implement self-discipline in governance matters, supervision of information disclosure has been strengthened, and the accountability and sanctions imposed on directors and board secretaries of listed companies who violate regulations have been increased. Similarly, regulators in Hong Kong are strengthening the responsibilities and accountability of directors and senior managers, including company secretaries. This demonstrates that both directors and board secretaries in Hong Kong and the Mainland will face more scrutiny as the main parties in charge of corporate governance.
Under the framework of corporate governance of listed companies in the Mainland, regulatory requirements and endorsements by regulatory agencies have given the board secretary a special corporate governance regulatory function and an indispensable position. For a long time, board secretaries and directors have formed a division of labour that overlaps with one another in fulfilling their corporate governance responsibilities and ensuring compliance. The Institute’s Council accordingly passed a resolution this year to extend the AP programme to directors. The Institute aims to provide special training for directors, build a communication platform for them, reflect their professional demands and help with their career development. In the future, we hope that the Institute can act as a platform that gathers a wider range of board secretaries and directors from Hong Kong and the Mainland, to discuss and promote better governance practices.
Board secretaries today
With the rapid development of the Mainland’s economy after joining the World Trade Organisation (WTO), there have been waves of overseas listings. Central enterprises, private enterprises, banks and other financial institutions have moved to overseas markets. In this process, overseas capital markets have adapted to, and improved their understanding of, the nature of Chinese companies. Similarly, companies from the Mainland have learned from, and adapted to, the convergence of the different social cultures and capital systems. From the perspective of reform and the overseas listing of Chinese companies, the internationalisation and globalisation of Chinese companies actually started with the internationalisation of capital and shareholder structures, followed by the internationalisation and globalisation of industries.
HKEX has amended its listing rules to allow Dual Class Structure companies to go public, attracting Chinese companies such as Xiaomi and Meituan, as well as Alibaba’s secondary listing last year. Conversely, the Mainland has been learning from, referencing and introducing international best practices. The Mainland’s new Securities Law is a good example of this. However, personally I am more worried about whether the actual operation of listed companies can be changed fast enough to meet the requirements of the new Securities Law. If the ideology and internal procedures of listed companies remain unchanged, there will be great risks in the process of implementing the law.
Frankly speaking, these potential risks are related to our culture. The Securities Law is mainly derived from the UK and the US, and basically follows the logic of the common law, while the Mainland operates a civil law system. Tradition on the Mainland emphasises goodwill, integrity and intentions, while the common law pays more attention to procedures, documents and evidence. In the European and US markets, as in Hong Kong where the common law is enforced, the rules are complex and sophisticated, seeking a good balance between the protection of small and medium-sized shareholders and the commercial operation of listed companies.
Information disclosure in the capital market is reflected in the company’s external communication, behind which is a very complex business, management and decision-making process that involves both conscious and technical issues. We lack theoretical and practical experience in this area. The Institute has long-term domestic and overseas market compliance experience, is responsible for providing best practice examples, and can also play a key role in protecting the interests of the company, as well as directors, supervisors and senior management.
Going forward, as a summary, it is expected that board secretaries should be aware of the following four aspects.
- Compliance and risk awareness. This is a basic skill a board secretary should have.
- Industry and professional awareness. The board secretary must not only understand the securities market, but also understand the management and business of the company.
- Capital and investment bank awareness. This is a competitive advantage of the board secretary and should be carried forward.
- Responsibility and accountability. The board secretary must not only have responsibility for the company he/she works for, but also have responsibility for the securities market and the society. Listed companies are direct users of the securities laws and listing rules. The board secretary has the most profound and three-dimensional knowledge of the relevant system, and should make indispensable contributions to the development of the securities market and the internationalisation of Mainland companies.
Dr Gao Wei FCIS FCS(PE)
Vice-President, The Hong Kong Institute of Chartered Secretaries (HKICS), and Chairman, HKICS Mainland China Technical Consultation Panel
Dr Gao has served as the Institute’s Vice-President since 2014, and is in charge of the implementation and supervision of the Institute’s Mainland strategy.
高伟博士 FCIS FCS(PE)