To accompany its OECD Corporate Governance Factbook on the rest of the world, the OECD has just published an Asian factbook on the legal, regulatory, and institutional framework for corporate governance across 14 jurisdictions that participate in the OECD Asian Roundtable on Corporate Governance; these are: Bangladesh, China, Hong Kong (China), India, Indonesia, Korea, Malaysia, Mongolia, Pakistan, Philippines, Singapore, Thailand, Chinese Taipei, and Viet Nam.
The report, a Survey of Corporate Governance Frameworks in Asia, includes tables on the following issues:
Ownership structures
Custodians/Regulators of codes and principles
Main elements of the regulatory frameworks
Key national corporate governance codes and principles
Key shareholder rights and voting rights
Disclosure and approval of related-party transactions
Governance-related responsibilities of institutional investors
The role of stakeholders
Board structure, size, and tenure
Mandatory board committees
Directors' qualifications, independence, and disclosure of director’s compensation
Gender balance on boards and in senior management
Concentrated ownership structures are a common feature, but the report says, however, that there are noteworthy differences between jurisdictions. While China and Viet Nam, for example, are characterised by substantial state ownership, India and Korea maintain significant family ownership structures; and Pakistan and Thailand have very concentrated ownership, with the top five shareholders in each country owning around 60 percent of all shares. Understanding ownership structures in Asia are critical to ensuring the development of effective corporate governance standards. There is similar diversity in oversight of governance codes, which falls to a variety of stock exchanges, securities and exchange commissions, ministries of justice, and state banks. There are also numerous examples of what the report terms ad hoc agencies, such as institutes of directors, accountants, chartered secretaries, governance network,s and shareholder watchdog groups, which also have influence over the various governance codes.
Key national corporate governance codes and principles
The box gives details of the key codes, their approach—whether they are binding, voluntary, or comply or explain—what disclosure rules surround them, who oversees them, and how they are enforced. The largest portion are comply or explain (41 percent), including Hong Kong, Singapore, and Thailand. But over a third are binding—India, Pakistan, and Bangladesh. Just under a quarter are voluntary—mainland China, Korea, Mongolia. Others have more than one approach, with some parts of the code comply or explain and others voluntary (e.g., Indonesia), and others partly voluntary and partly binding (e.g., Philippines).
Shareholder rights vary widely. To request an emergency general meeting (EGM), shareholders must generally own between 3 percent and 10 percent of total stock, depending on the jurisdiction; though there are exceptions. In Korea, shareholders need own only 1.5 percent for listed companies and, in Thailand, the holding requirement is 20 percent or 25 shareholders holding 10 percent. A holding requirement of 10 percent is most typical, being the practice in Viet Nam, Singapore, Pakistan, Mongolia, Malaysia, Indonesia, India, China, and Bangladesh. Most require a two-week notice to be given, though Mongolia requires a full 30 days. To place a resolution on an annual meeting agenda requires either a 5 percent or 10 percent holding depending on jurisdiction, but again there are exceptions. Chinese Taipei requires only a 1 percent holding and China a 3 percent holding, while in Hong Kong, it is a 2.5 percent stake or at least 50 members who have a right to vote.
Only India, Bangladesh, Pakistan, and Viet Nam allow shares to be issued with multiple voting rights; in other words, a class of shares that has more than one vote. In the Philippines, it is also generally "one share, one vote" except where the election of directors is concerned, in which case cumulative voting is allowed. On the other hand, half of the countries allow the issue of shares with restricted voting rights, including Korea, Viet Nam, and Bangladesh, while Chinese Tapei and Indonesia are allowed to restrict or remove voting rights from preferred shares. Voting agreements—where shareholders band together and agree to vote in tandem on certain issues—must be disclosed in only six countries: China, Indonesia, Korea, Malaysia, Philippines, and Singapore.
All the countries require the disclosure of related-party transactions, though many have thresholds at which disclosure is triggered and below which no disclosure is necessary. A related-party transaction is business by an insider or outside director that is transacted with the company or one of its subsidiaries. Singapore, which is one of the most anti-fraud, anti-corruption jurisdictions in the survey, has the following requirement:
Directors must disclose conflicts of interest to the BOD [board of directors]. They are also required to disclose all transactions (regardless of transaction value) if the cumulative transactions with that interested person and its associates are above the 3 percent threshold. Where the threshold exceeds 5 percent, shareholder approval is required. In most cases, the board and shareholders must approve these related-party transactions, though in Malaysia, Indonesia, and Singapore only shareholders need approve them.
The report also looks at the role of stakeholders. Most employees, for example, are eligible for profit-sharing plans, except for India and Singapore. And all but Hong Kong offers employees access to mediation or arbitration in violation of rights cases. Whistleblower protection is less widespread, however, found only in China, Chinese Taipei, India, Indonesia, Korea, Malaysia, Pakistan, and Thailand.
Of board committees, the only one mandated in all jurisdictions is the audit committee. Nomination and remuneration committees are also common, mandated in eight countries, though in Korea and Malaysia only for financial institutions. Indeed, risk management committees are also commonly mandated for banks, in Thailand, Singapore, Philippines, Malaysia, Korea, and Indonesia. All countries require directors to pass a “fit and proper test,” though two-thirds also require a minimum of education, training, and professional experience, this is not required in China, Hong Kong, Korea, India, and Thailand. Only Bangladesh, Malaysia, and Singapore do not require some form of disclosure of directors’ remuneration. Pakistan, Mongolia, and Bangladesh require an independent chairman. All countries require directors to be elected and, typically, there must be around a third who are independent. And only Malaysia and China must disclose gender statistics of boards and senior management; Malaysa and Chinese Taipei have targets for women on boards, and India has a quota of one woman per board by 2016. Malaysia is not meeting its target, though it is doing better than Taipei. Most countries have higher proportions of women in senior management than they have women on boards. Thailand, Singapore, Philippines, and Taipei all have roughly a quarter of senior management positions occupied by women.
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