Since the 1997 financial crisis, Asian governments have made good progress in raising awareness of the value of good corporate governance, a white paper sponsored by the World Bank and Asian Development Bank concluded last year.
Yet there is still some way to go before listed Asian companies achieve the transparency of their western counterparts. Partly this is because of features of the business landscape that are peculiar to Asia - notably the fact that two thirds of listed companies and most private companies are family owned.
The challenge, the white paper said, is to encourage the dynamism of family businesses while channelling their operations into more transparent structures.
The right sort of family-owned companies in Asia can often be a model of good corporate governance, says Hugh Young, managing director of Aberdeen Asset Management Asia. “The heart of corporate governance is to be able to assure ourselves that a company is going to look after us as shareholders.Since it is often the family in Asia which controls the company we have to ask, are they an honest family who’ve got a reputation to lose?”
Young says that the attitude of the right sort of family-owned companies in Asia can provide a pleasant contrast to the attitude of managements of western companies: “The honest family business in Asia is usually running very conservative figures, often for tax reasons. Family-owned businesses are often very good because they take their sense of ownership seriously.”
Corporate governance issues in Asia are just as likely to arise as a result of the activities of non-Asian companies as Asian companies, he says.
“The biggest corporate governance battles we’ve had have been with companies that ought to know better. There are quite a few companies in Asia that are subsidiaries of multinationals. In some cases the parent company has made a bid for the balance of the shares it does not own in its subsidiary. In these cases, the directors of the subsidiary have not acted as directors of the subsidiary but as long-term employees of the parent company.
“The directors of the subsidiary should have said ‘we, as directors - whether employed by the parent or not, - have a duty to be independent and to say to you that you’re not paying the right price.’”
Sometimes, collective opposition from institutional shareholders can compel the parent to raise the price. Young says: “When a US multinational bid for a subsidiary in India in which we held shares at what we regarded as a low ball price, we became part of a shareholder action group. Subsequently they came in with a higher bid and that was rather gratifying.”
Besides ‘bottom up’ militancy from shareholders, ‘top down’ pressure from governments and government agencies has helped raise awareness of corporate governance in Asia, and corporate governance codes have been introduced across the region.
Lobby groups have also helped. Aberdeen Asset Management Asia is a member of the Asian Corporate Governance Association, an organisation that provides members with statistical back up and liaises with government bodies.
Yet there are still dangers in too vocal a debate about corporate governance in Asia. Young says: “The law can be used against you. There are still jurisdictions where the law of defamation will be used against the slightest criticism of individuals. So it can be hard to have an open debate and to get corporate governance actually enforced.”
Some corporate governance issues could be resolved by a simple change in company law, he suggests. One example is the restrictions placed on institutional investors attending annual meetings. Although institutions are allowed to vote, they do not necessarily have the right to attend AGMs.
“It can be hard for institutions to attend AGMs in some countries because their shares are held in the name of a nominee. As far as the company is concerned, that nominee is the shareholder and cannot sub-delegate votes on shares the institutions hold.
“Naturally we would want to attend AGMs and raise various issues but we can’t always be nominated as proxy because of other clients in nominee name holding the shares.”
Company law needs to change to enable full participation at AGMs , says Young. Overall,he is optimistic but realistic about Asian attitudes to corporate governance: “Things have improved dramatically in Asia, but it takes time. It’s not yet in the blood.”


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