A simple layman's introduction to corporate governance
may be to describe the concept as 'the harmonious relationship
between a corporation's major participants (i.e. the
management team, the board of directors and the shareholders)
and the outsides players such as the auditors, employees,
customers, regulators, stockbrokers, suppliers, lenders,
company secretaries and investing public. If the company
applies for an IOP, the relationship will have to stretch
to include the sponsors, investment bankers, legal advisers
and professional valuers.
This concept of corporate governance also assumes a
division of ownership and management. In other words,
general investors will not play a hands-on role in managing
the corporation, although they will rely on the corporate
governance structure to ensure that those in control
regularly distribute fair rewards. A good structure
will also minimise conflicts between organisation's
directors, management team and shareholders, and the
But, how does this concept of corporate governance
apply to professional intermediaries such as accountants,
and what predicaments do they face?
In theory, responsibilities, risks and remuneration
should be proportionally balanced for everybody in an
organisation. In other words, those who bear more responsibility
and accept greater risks should be better rewarded than
those who don't. In really, those who call the shots
often seize the lion's share of the rewards, while taking
on minimum risks and passing to others as much responsibility
In some corporate cultures, the regulators tend to
pick on easy targets within the regulatory framework
- those who have the least say are often the most vulnerable.
It is apparent that in many countries, professional
intermediaries are often lumbered with huge responsibilities
and, not withstanding, increasing risks of civil and
even criminal liability. In the most extreme cases,
when a serious problem strikes, these intermediaries
are intentionally picked on by the organisation's management
team and the regulators. Consequently, many have become
scapegoats even though they are neither the decision
makers nor the surplus.
According to press reports, Hong Kong's Administration
has only applied its legal power nine under s29A of
the SFC Ordinance times since 1994 to investigate
mismanagement and fraud in listed companies. But, during
the same time period, countless complaints have been
launched against professional intermediaries which has
caused substantial, negative media pressure, as well
as occasional astronomical civil claims and the threats
of criminal charges.
This environment cannot be described as fair for the
many professional intermediaries, i.e. accountants,
who are helping to create Hong Kong's wealth.
In the case of accountants, we have already been extremely
proactive in taking on more responsibility in the eyes
of the public, raising our own awareness to help prevent
the wrong-doings of others, e.g. fraud, and constantly
making constructive recommendations to improve Hong
Kong's regulatory framework and our peers' professional
But despite all this, the Government and the public
are still asking more of accounting professionals. In
fact, such is the case that the increasing responsibility
and practice risks imposed on Hong Kong's auditors are
gradually eroding the attractiveness of the profession
for new accountants entering the auditing arena. I'm
sure that many would agree that our modest remuneration
now seems even more modest still.
The short-term implication may be to increase our auditing
fees as compensation. This would eventually be passed
on in the form of increased operating costs, reducing
Hong Kong's overall competitiveness.
In the long run, the accountancy profession is hopeful
that the Government will, as announced by the Financial
Secretary in his recent Budget, conduct a proper review
of the corporate governance practices used for monitoring
IT shares. This will most probably result in accountants
having to take on additional responsibilities. But if
we take on more responsibility, we should also be given
a greater say in the decision-making process.
I have called for the establishment by the SFC of a
Professional Intermediaries Advisory Council, which
would allow the profession to select its own representative
to play an active role in the whole process.
Another timely and worthwhile review should be the
introduction of a system of 'proportional responsibility'.
This system for allocating responsibility has been piloted
overseas and has proved useful for setting a reasonable
responsibility limit for professional accountants.
Such system would enable us to gauge our risks and
costs more accurately and would eventually help us reduce
charges, enhancing Hong Kong's overall business competitiveness
as a result.
I believe this system would also benefit others responsible
for implementing corporate governance measures as it
would allow them to assess their own responsibility
and risks in a more open and fair manner.
As Hong Kong is fast restructuring its economy, it
is unavoidable that the newly emerging economy will
entail a certain element of risk and speculation. An
ideal corporate governance structure must not stifle
innovation or inhibit the high-growth potential of new
businesses which deserve the chance to succeed.
However, some of them will also undoubtedly be eliminated
as a result of high competition. We need to make the
space to ensure that these economic 'bubbles' are burst
in a controlled fashion.
To succeed in the new economy, we must aim to attract
the best talent from as wide a circle as possible to
work in our high-growth industries. We also need to
provide a fair playing field so that all, including
accountants, will find their responsibilities, risks
and remuneration correctly balanced. This will give
everybody the confidence to invest their money, time,
energy and skills unreservedly.