Hong Kong’s Stock Exchange Hiding Information in Plain Sight
The struggle for corporate transparency in Hong Kong has never been smooth. But it appears to have suffered a new setback at the hands of the local stock exchange, which claims it is moving into the electronic age and advancing communication between listed companies and investors but in reality is helping information-allergic companies to retain a low profile.
After almost seven years of prevarication the Hong Kong stock exchange has started to phase out the requirement for companies to publish statutory information in newspapers and has allowed all this material to be conveyed in electronic form on its own website and that of the individual companies.
The exchange is hailing this measure as a sign of its progressive thinking. In a written statement Richard Williams, the exchange’s Head of Listing, said the new procedures “will bring the issuer information dissemination regime in Hong Kong in line with the regimes in other major international financial centres and provide the foundation for further developments such as real time electronic disclosure during trading hours and the elimination of unnecessary suspensions which currently arise pending publication of announcements in the newspapers. Overall it will strengthen the competitiveness of the Hong Kong securities market and increase its attractiveness to investors.”
Although a good case could be made for the electronic publication of results, the worries arise over the publication of information that companies would prefer to keep quiet. This sometimes includes lacklustre financial results but more typically concerns details of connected transactions, reasons for sharp movements in the share price and share dealings of directors, not to mention really embarrassing things like the resignation of auditors.
Awareness that information of this nature had to be disclosed in print exercised some form of restraint on companies engaged in activities that could be of determent to their minority shareholders. The information still has to be disclosed but is far more easily buried in electronic form.
Indeed, companies determined to keep information away from their shareholders will take comfort from work by researchers at the Chinese University of Hong Kong showing that almost 72 per cent of respondents to their survey obtained their corporate information from newspapers.
Were they to go the exchange’s own website, where all this information is supposed to be lodged (www.hkex.com.hk), they would discover an aggressively user-unfriendly site where the simplest piece of information is only obtained by extensive trawling of the home page and misleading signposting that confuses rather than assists users.
The websites of the individual companies that are supposed to provide the statutory information vary enormously in quality. Most however are distinguished by designs that make it very difficult to obtain the sort of information required by investors wanting to check whether or not the majority shareholders are behaving in a manner that provides reassurance.
This is no small matter in Hong Kong, where the overwhelming majority of companies are tightly controlled by a single majority shareholder (albeit sometimes in the form of a family rather than an individual) who owns as much as 75 per cent of the equity and often tends to treat public companies as private entities encumbered with outside investors of marginal importance.
Fortunately there is an alternative source of information for investors that closely monitors the activities of majority shareholders. This is www.webb-site.com, run by David Webb, a one-man corporate watchdog who successfully won election to the exchange’s board on a reformist ticket but does not seem to have had any impact on its electronic communications policies. His website is a model of clarity with sub-sections given names like ‘Hall of Shame’ and ‘Laughing Stock’, which give users a pretty good idea what they are going to find.
Most importantly, investors can go to Webb’s site and instantly discover whether the directors of a listed company have been censured, arrested or otherwise engaged in activity that requires their attention. The information all comes from official sources but it has required considerable research and dogged work to compile it in such a user-friendly form. This is essentially the work of one person and an assistant. The combined massive resources of the stock exchange have singularly failed to produce anything even vaguely as useful.
An interim period is in force prior to the full introduction of electronic communications. This is a result of successful lobbying by the Newspaper Society of Hong Kong and has produced a truly absurd compromise, involving a half-year period of small announcements being placed in newspapers pointing to the existence of more detailed announcements on websites. The ‘pointer’ adverts contain no information other than simply saying that the details are to be found elsewhere.
It is hard to see whose interests are served by this compromise, other than those of the newspapers, which stand to lose a great deal of revenue by the ending of publication of statutory announcements. In Hong Kong’s bilingual system these adverts must appear in one Chinese-language and one English-language newspaper. This proved to be an enormous boost for the smaller of Hong Kong’s English language dailies, The Standard, owned by the listed Sing Tao group, but it also helped the Chinese state-controlled China Daily, which has a little-read Hong Kong edition that was enthusiastically used by companies with information to bury. The state-controlled Chinese-language dailies, Ta Kung Pao and Wen Wei Pao, also benefited from the old system, and regularly saw Hong Kong-listed but Chinese state-controlled companies placing their advertisements in these papers. However the real revenue loser here is the much wider-read and authoritative Chinese-language Hong Kong Economic Times.
The newspapers have a vested interest in the preservation of the old system but fought the battle for its preservation on dubious grounds. Citing the number of elderly investors without access to computers was hardly likely to persuade anyone they had a real case.
Nor did the newspaper lobby convince with its appeal to preserving corporate transparency because the lobbyists, some of whom are associated with companies with much bigger other corporate interests, were loath to state the obvious in drawing attention to the value of the printed word for inhibiting majority shareholder abuse.
Nevertheless, as the exchange has pointed out, electronic communication is becoming the international norm and facilitates greater speed of publishing information. Companies will also save a lot of money in advertising although no doubt when they have good news to convey they will be willing to splash out to publicize it.
The problem in Hong Kong is that minority shareholder abuse is rampant as majority shareholders juggle their private and public assets to their own advantage and although disclosure does not prevent this happening, it acts as a brake. Were the stock exchange seriously committed to enhancing transparency it would at the very least fix its own dismal website and when needed, as in the case of censuring stock market participants, it might consider making more effort to publicize its actions in language that can be understood by all.