Transnational corporate governance codes: Lessons from regulating related party transactions in Hong Kong and Singapore

• Main Authors: CHEN, Christopher C. H., WAN, Wai Yee
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2019
• Subjects: transnational corporate governance code; corporate governance; related party transactions; Hong Kong; Singapore; legal transplant; Asian Studies; Transnational Law
• Online Access: https://ink.library.smu.edu.sg/sol_research/2963; https://ink.library.smu.edu.sg/context/sol_research/article/4921/viewcontent/SSRN_id3331814.pdf
• Institution: Singapore Management University

Many jurisdictions around the world, includingAsia, have corporate governance codes largely based on the transnational codedrafted by the Organisation for Economic Cooperation and Development (OECD).The core ideas underpinning the OECD’s principles of corporate governance are boardindependence and proper management of conflicts of interest. These ideas, drawnfrom the Anglo-American model of corporate governance, are designed to protectcompanies and their shareholders. However, the question remains as to whether atransnational corporate governance code is always appropriate and effective, particularlywhen the kinds of companies listed on the stock exchange significantly differfrom the Anglo-American model. In this article, we examine Hong Kong andSingapore, two Asian financial centers with national corporate governance codesthat are closely aligned with the OECD principles of corporate governance. The regulatoryand institutional framework supplementing these principles has broadly followedthe Anglo-American model. However, Hong Kong and Singapore have listedcompanies that differ from the Anglo-American model, particularly in two respects:the shareholdings in the two Asian jurisdictions are much more concentrated,and they have comparatively higher levels of foreign listings. Drawing fromempirical data related to tunneling through related party transactions from2002-2004 and 2009-2014, which has remained rampant among listed companies inthe two jurisdictions, we argue that that a one-size-fits-all approach to theOECD principles may not be appropriate if we ignore local characteristics. Specifically,we examine the concentrated shareholding structures and the large number offoreign (notably Chinese) firms listed in Hong Kong and Singapore. Although thisarticle does not fundamentally challenge the utility of the OECD principles ofcorporate governance, we suggest that national regulators should not unreservedlyfollow these principles without adapting to local circumstances and devising specificstrategies to deal with local problems.