5.1.1 State Corporate Laws    In the US, corporations are established and are subject to the regulations of the state in which they were created and about 50% of public companies in the United States are incorporated in the State of Delaware. State corporate law impacts corporate governance by defining the fiduciary duties, authorities and responsibilities of shareholders, directors and officers; and by empowering shareholders to elect directors, to inspect the company's ledgers, books, records and financial reports, to receive proxy materials and approve major business transactions such as mergers and acquisitions. State corporate laws enable shareholders to monitor directors and officers in working for the best benefit of shareholders.

5.1.2 The Federal Securities Laws    Federal Securities Laws are either developed through the judicial processes or passed by Congress and are intended to protect investors in public companies from receiving misleading information such as materially misstated financial statements and to improve investor confidence in the integrity and efficiency of the capital markets. The Federal Securities Laws are the primary disclosure-based statutes that require public companies to file a periodic report with the Securities and Exchange Commission (SEC) and to disclose certain information to their shareholders to enable them to make investment and voting decisions. Congress responded to the wave of financial scandals during at the turn of the 21st century by passing the Sarbanes-Oxley Act of 2002 (SOX),⁷ which expanded the role of federal statutes in corporate governance by providing measures to improve corporate governance, financial reports and audit activities. The aftermath of the 2007–2009 Global Financial Crisis prompted Congress to pass the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010⁸ to minimize the likelihood of a future financial crisis and systemic distress by empowering regulators to require higher capital requirements and by establishing a new regulatory regime and corporate governance measures for large financial services firms. These regulatory reforms and their impacts on corporate governance are discussed in the next section.

5.1.3 Listing Standards    National Stock Exchanges play an important role in shaping and reshaping corporate governance of the listed public companies by establishing mandatory listing standards. Listing standards often go beyond government reforms by addressing the uniform voting rights to majority voting practice for the election of directors, shareholder approval of executive compensation, mandatory internal audit function and risk assessment.

Investor are now often invest globally and to address the the importance of global exchanges, in November 2009, the United Nations (UN) invited the world's stock exchanges to open dialogue with investors, regulators, policymakers, researchers and companies to find creative ways to improve corporate environmental, social and governance disclosure and performance with the goal of encouraging responsible long-term approaches to investment. It was a call to recognize the momentum achieved by responsible investment as part of the solution to the Global Financial Crisis. All listing authorities and stock exchanges are encouraged to make it a listing requirement that companies should (1) consider how responsible and sustainable their business model is and (2) provide non-financial GSEE information and (3) disclose a forward-looking sustainability strategy to the vote at their annual general meetings (AGM).⁹ At the same time, the PRI signatories are called upon to support the initiative by showing a commitment to trade on stock exchanges that maintain this listing provision. This last element is critical in making it clear to stock exchanges that there is a business case for their making changes.¹⁰ As a result, there is nascent movement by exchanges to require new listings to be more transparent in their governance of and management of their sustainability performance and disclosure. The Johannesburg Stock Exchange and the Singapore Exchange (SGX) require their listed companies to report on sustainability considerations and Mainland China's state-owned Assets Supervision and Administration Commission now expects the largest state-owned companies to report as well.

5.1.4 Best Practices    One effective way to improve corporate governance is to look up to leaders in the industry and follow their best practices. Best practices are typically non-binding corporate governance guidelines intended to improve corporate governance practices of organizations above and beyond state and federal statutes and listing standards. Examples of some of these best practices include the “say-on-pay” system of shareholders approving executive compensation, the majority voting system and separating the CEO and the chairperson of the board of directors, the latter practice being intended to improve the effectiveness and objectivity of corporate governance.

The primary role of corporate governance is to ensure that managers act in the best interest of the company and its stakeholders, not for self-interest or the interests of the majority shareholders. Good corporate governance ensures accountability of the board and management to stakeholders including shareholders. Strengthened accountability promotes transparency, which should lead to an increase in capital inflows from domestic and foreign investors and thus the potential for lower cost of capital. Governance performance mechanisms establish policies and practices that address the conflict of interests between shareholders and managers. The strength of governance mechanisms includes (1) executive compensation linked to performance (2) ownership strength and (3) transparency. Concerns of governance are (1) high compensation (2) ownership concentration and (3) CEO duality.

5.2.1 Legal System    Many Asian countries (jurisdictions) were colonized by the UK, France, the Netherlands and Spain and therefore their legal systems are largely affected by these countries. For example, Hong Kong, Singapore and Malaysia adopt common law as they are former British colonies. Although Hong Kong returned to Mainland China in 1997, the “one country, two systems” policy allows its legal system (common law) to remain largely unchanged for 50 years. Other Asian countries (jurisdictions) including Mainland China, Japan, South Korea, Thailand, Indonesia and Taiwan can be broadly classified as code law jurisdictions, although the legal systems in some countries, such as Japan, are also influenced by common law. The prevailing view in the legal and corporate governance literature contends that common law provides better investor protection, which enhances the effectiveness of corporate governance, than does code law.¹³

Corporate governance codes or principles are enforced differently throughout Asia, with alternatives for the extent of compliance, namely binding, voluntary and/or comply-or-explain approaches.¹⁴ In general, India and Vietnam follow the binding approach. Mainland China, South Korea, the Philippines and Indonesia follow the voluntary approach. As with other common law jurisdictions in the rest of the world, Hong Kong, Malaysia, and Singapore employ the comply-or-explain approach. Some code law jurisdictions such as Mainland China, Taiwan, Indonesia and Thailand also use the comply-or-explain approach. Interestingly, some countries such as Mainland China and Indonesia employ both the voluntary and the comply-or-explain approaches, reflecting the fact that there are different expected benefits from these two approaches in different areas of corporate governance.

5.2.2 Cultural Influence    Culture is one of the most important implicit institutions that affect corporate governance around the world. Recent studies show that two of Hofstede's cultural dimensions, namely individualism and uncertainty avoidance, have stronger explanatory power compared to other country-level variables used in prior literature.¹⁵ More specifically, these studies show that Hofstede's individualism (uncertainty avoidance) is significantly positively (negatively) associated with corporate governance measures which capture the proximity to corporate governance practices based on the Anglo-Saxon approach (such as transparent disclosure, equity-based compensation and independent boards). Although cultural backgrounds in Asia are diverse, these cultures have the common feature of a high level of collectivism. In Asia, Confucianism, a form of family-centered collectivism, has a strong impact on Chinese values and the individual's value in countries such as Mainland China (including Hong Kong and Taiwan), South Korea, Japan and Singapore and has significant impact on Asian corporate governance practices. Confucianism values encourage both social and business network relationships (guanxi) and they tend to be based on personal friendship and trust (xinyong) rather than on a formal relationship. As a result, relation-based systems prevail in societies that are strongly affected by the Confucianist ideology.¹⁶ Such relation-based systems result in several corporate governance issues in Asia. For example, independent directors cannot monitor corporate insiders effectively because of the restrictions exposed by the social network. Such a system is more likely to result in questionable related-party transactions that are suspected to exploit minority shareholders. In family-controlled firms, a dominant corporate form in Asia, trust is restricted to family (or expanded family) and therefore precludes the benefits of hiring competent professional managers from the external labor market.

5.2.3 Corporate Ownership and Controls    The ownership structure in Asia is very different from that in the US and the UK where shares are held diffusely. In Asia, ownership is concentrated in one or several controlling shareholders. Family-controlled firms are the most prevalent form of ownership in almost all Asian jurisdictions, such as Japan, Hong Kong, South Korea, Malaysia and Singapore. This can be attributed to weak investor protection regimes in Asia. Although ownership is generally concentrated across Asian countries, the majority shareholders and the form of ownership concentration differ in each country. For example, in some countries where the state has strong influence on the economy, state-controlled firms hold most of the shares. Mainland China is one of the largest Asian economies where state-owned enterprises (SOEs) are the dominant players in the economy. In India, Singapore and Vietnam, the state also controls a considerable number of listed companies. In Japan, families control companies through keiretsu, a form of mutual shareholding structure through which many companies are interconnected in a network where each of them holds shares in the other companies. In South Korea, many giant family-owned firms are Chaebol, from a combination of “Chae” (wealth or rich) and “bol” (clan or family). In the 1990s, the World Trade Organization (WTO) reported that Chaebol owned around two-thirds of the market share in South Korean manufacturing.¹⁷ In other Asian economies, many families control firms through pyramid structures.

The concentrated ownership structure gives rise to different governance problems as the majority shareholders have both the ability and incentives to extract benefits at the expense of the minority shareholders. For example, the government in Mainland China enforces the country's laws and therefore may command the SOEs to pursue social policies such as lowering the unemployment rate and reducing the government's deficit budget which are not consistent with shareholder value maximization. The government could also intervene in the market to protect the SOEs and put private companies in a disadvantageous position. In the East Asian economies, family-controlled firms are likely to exploit the minority shareholders by self-dealing.¹⁸ The concentrated ownership incentivizes the controlling shareholders to make their financial reporting opaque in order to reduce the leakage of proprietary information about the firms' rent-seeking activities and to make self-dealing easier by preventing potential disciplinary measures by the board of directors and the market.¹⁹

5.2.4 Board Structure    The 1997 Asian Financial Crisis (AFC) triggered Asian countries to improve corporate governance by reforming their board structure. Many regulators in Asia realized that increased board independence could help to curb the controlling shareholders' tendency to exploit minority shareholders. South Korea responded to the AFC by quickly reforming its board structuring code. The 2003 amendment of Listing Act in South Korea stipulates that large listed companies must have at least three outside directors, with half of the outside directors being appointed directors of the board. The Japanese Corporate Governance Code took effect in June 2015 requiring that “The board should be well-balanced in knowledge, experience and skills in order to fulfill its roles and responsibilities and it should be constituted in a manner to achieve both diversity and appropriate size.” The code also states “Independent directors should fulfill their roles and responsibilities with the aim of contributing to sustainable growth of companies and increasing corporate value over the mid to long term. Companies should, therefore, appoint at least two independent directors who sufficiently have such qualities.” To improve the effectiveness of supervisory boards in Mainland China, the China Securities Regulatory Commission (CSRC) made two major amendments in the Company Law in October 2005. First, the law mandated that at least one-third of the supervisory board's membership must consist of elected labor representatives. Second, the supervisory board has the authority to dismiss senior executives and the right to file legal complaints against senior executives. Despite such efforts, commentators still doubt whether independent directors can monitor companies effectively because of the collectivist culture and the influence of the majority shareholders in Asia.

6.1.1 Board Committees    The entire board of directors are responsible for the oversight function. However, to fully utilize directors' expertise, the board is classified to several committees. Board committees normally function independently of each other. They are provided with sufficient resources and authority and evaluated by the board of directors. Board committees bring more focus to the board's oversight function by giving proper authority and responsibilities and demanding accountability for the discharge of members' responsibilities. Listing standards of national stock exchanges in the US (e.g., NYSE, AMEX, and Nasdaq) require that listed companies form at least three board committees, which must include audit, compensation and nominating committees. In addition to these three mandatory committees, public companies often have governance and other committees such as finance, IT and disclosure. The next three sub-sections discuss the three mandatory board sub-committees for listed companies and various other committees that the board may create.

6.1.2 Board Oversight Strategy on Sustainability    The board primarily oversight strategy should focus in creating shared value for all stakeholders. As sustainability is gaining attention from investors, regulators and bushiness, the board of directors should set a tone at the top in promoting and achieving sustainability performance. This includes proper strategies to create shared value for all stakeholders by achieving continuous improvements in all five EGSEE dimensions of sustainability performance. The best board strategy is one that effectively represents and protects the interests of all stakeholders from investors to employees, customers and society. On July 13, 2011, the Lead Director Network (LDN) invited a select group of independent directors from Fortune 500 companies to discuss ways to improve board governance. Participants discussed the four important aspects of board strategy set out below:²⁷

• The board's role in corporate strategy—Participating directors were in common agreement that the board oversight strategy is the most important fiduciary duty of the board of directors. The board's involvement in strategic oversight ensure corporate success should be promoted.
• International opportunities and risks—A large majority of participating directors believe that companies should capitalize on globalization, expand their operation and customer base internationally and participate in the global capital markets while considering global market risks, political instability, bribery and corruption, money laundering, cybersecurity, cyberattacks, human rights, threats to intellectual property rights and scarce resources.
• Improving strategic oversight of international opportunities and risks—The board of directors should broaden their knowledge, expertise and experience in the international aspects of their businesses and/or hire advisors who possess adequate knowledge of globalization, corporate governance measures and expertise in different geographies.
• The lead director's unique role in strategy—Lead directors play an important role in setting the agenda and direction for the board and managing the board particularly when there is CEO duality. They should focus their attention on corporate strategy including strategic opportunities and risks.

A study conducted by the Conference Board in 2010 indicates that boards of directors do not focus on and do not adequately address business sustainability. Many companies do not have an effective structural framework to properly facilitate director oversight of their sustainability program.²⁸ Directors do not have credible and timely information on the KPIs and measures of EGSEE sustainability performance. Findings of the 2010 Conference Board survey regarding sustainability in the boardroom are highlighted below:

1. Many current sustainability initiatives and motivational drivers that widen the interest and influence of stakeholders in corporate sustainability performance (EGSEE) and more demand by regulatory bodies, enforcement agencies and activist investors for sustainability disclosures have encouraged boards of directors to pay more attention to corporate sustainability.
2. The majority of corporate boards do not have adequate information or do not utilize such information on many dimensions of EGSEE sustainability performance.
3. The majority of companies do not use the available business sustainability standards, policies, procedures and practices in developing uniform and consistent sustainability disclosures.
4. The majority of companies do not evaluate the impacts of sustainability activities (e.g. social, environmental) in their financial performance. There should be more focus on not only financial impacts but also social and environmental impacts of business operations.
5. Some of the emerging sustainability issues (climate change, pollution, green house gas emission CSR, ethical workplace, human rights political spending and board diversity) are gaining the attention of investors and thus boards of directors.

6.2.1 Executive Compensation    Executive compensation comprises of salary, bonuses, the value of stock options, restricted stock, long-term incentive pay and other compensation paid to CEOs and other top executives. Senior executives are typically paid a salary, an annual bonus and long-term incentive compensation. Financial scandals and crises have raised concerns regarding the reasonableness and effectiveness of executive compensation in motivating management to create sustainable performance. Executives should be compensated to align their interests with those of investors and to provide incentives for them to create shareholder value while refraining from excessive risk activities.

The Dodd-Frank Act is intended to improve corporate governance effectiveness and disclosure in many areas, including non-binding or advisory shareholder votes on “say-on-pay” and “say-on-golden-parachutes” regarding payments to executives associated with mergers and acquisitions and major asset transactions. The Dodd-Frank Act requires that at least once every three years, shareholders vote on executive compensation, and that at least once every six years a proxy form or shareholders meeting discuss whether shareholder voting should occur every one, two or three years. According to the provisions of the Dodd-Frank Act, “say-on-pay” means a non-binding vote by shareholders of a publicly traded company for approval or disapproval of the company's executive compensation program. Nonetheless, any negative say-on-pay vote should not be automatically interpreted as evidence of failure by the company directors and officers to fulfill their fiduciary duties. Companies are required to disclose (1) the relationship between senior executives' compensation and the company's financial performance in terms of graphs and charts (2) the ratio of CEO compensation and the median total compensation to employees excluding CEO compensation and (3) whether employees or directors are allowed to hedge against a decrease in value of options included in their compensation scheme.²⁹

Several suggestions are provided for improving the effectiveness of executive compensation including the following:³⁰

1. The dual problems of moral hazard and collective action should be curbed by creating new disclosure and compensation regimes.
2. The true losers in the Financial Crisis had little control over the incentives of risk managers on Wall Street and elsewhere so policymakers need to address the basic human problems inherent in the trading firm on more than just economic grounds.
3. Public policy should not incentivize the better-informed financial elite to make decisions at the expense of the everyday investor.
4. The provisions in Dodd-Frank that affect the executive pay process will have the broadest and most significant impact on the pay process.
5. The proxy statement continues many of the trends noted in prior years, namely enhanced attention to the risk profile of compensation strategies; more companies adopting claw-back policies; increased acceptance of shareholder say-on-pay votes and increased use of independent compensation consultants.
6. To prevent the situation that executives' personal interests can tumble a corporation and send ripples of pain elsewhere, independent compensation committees have been charged with creating appropriate incentives for executives.
7. There should be effective board compensation committee oversight of executive compensation policies and practices.
8. A direct linkage should be provided between executive compensation and overall long-term sustainable performance.
9. Executive compensation schemes should be designed to be aligned with the company risk appetite and tolerance.
10. Public disclosure of executive compensation schemes and their components should be improved.
11. Non-performance-based pay should be minimized.
12. Management interests should be aligned with those of shareholders by linking executive compensation to sustainable performance.

Companies should tailor one or a combination of the above measures into executive compensation schemes that reward sustainable performance. The best executive pay for performance measure is the one that rewards good sustainable performance, provides incentives for executives to achieve the highest possible sustainable performance while taking justifiable prudent risk, minimizes the compensation cost to shareholders, attracts and retains key talent and promotes the culture of integrity and competency.

9.1.1 Social Norms    Mainland China is a society based on relationships. Business transactions are typically carried out between parties with close private social ties—guanxi—which serves as a catalyst to enforce contracts privately. Previous study suggested that an individual's behavior is governed not by universal law but by social norms in the form of rituals and informal rules. The most fundamental unit in a person's network is the family. For example, the eldest son typically inherits the family wealth and takes the helm of the family business. The advantage of guanxi society is that in the absence of a stable government to enforce universal laws, individuals can use their own social ties to build trust, exchange private information and regulate contracts, with reward and punishment mechanisms within the social structures. Through the guanxi relational system, individuals' interests are protected within a close-knit network. However, these self-interests may be in conflict with those outside the network and society in general. The rituals and informal rules within a private network are not necessarily the universal rules that govern Chinese society. Deep trust established within a small network of friends could result in mistrust and even conflict between other private networks in a society.³⁶ As a result, guanxi has important implications for corporate governance in Mainland China, e.g. enhancing corporate finance performance and avoiding regulatory punishment by building up political connections.

9.1.2 Legal and Regulatory Framework    Mainland China is a code law country. Courts are controlled by the government and the judiciary is not independent. The courts may not be able to make unbiased judgments when SOEs or the government are involved. With an under-developed legal system, Mainland China counts on regulators to regulate and enforce investor protection. The China Securities Regulatory Commission (CSRC) is analogous to the United States SEC. The Commission was established in 1992. Led by Mainland China's State Council, the CSRC sets rules for issuance and listing of shares, regulates various activities in financial markets, and investigates and penalizes violations of relevant laws and regulations. However, due to manpower and budget constraints, the CSRC has difficulty in effectively monitoring the substantive implementation of corporate governance.

9.1.3 Highly Concentrated Ownership    Ownership in Mainland China's listed firms is highly concentrated. Owners tend to exercise more control over Mainland Chinese companies than do their Western counterparts.³⁷ Another feature of Mainland China's stock market is that government agencies have a high level of ownership and a strong influence over many of the country's publicly listed firms. According to Wong (2016), SOEs account for around a third of Mainland China's Gross Domestic Product (GDP) and almost 40 percent of investment with a rate of return of less than half that of the private sector. There is room to enhance growth by reallocating more capital to the private sector.³⁸ Members of the Communist Party are often appointed to company boards and Mainland Chinese regulations require publicly listed companies to provide “necessary support” for the functioning of the Communist Party within their firms.³⁹

In private firms, there is high ownership concentration by the largest shareholder. Wong (2016) shows that the controlling shareholders own more than 30 percent of private firms. The majority shareholders' ownership allows them to effectively control firms' major decisions. Such ownership structure provides both incentive and opportunity for majority shareholders to exploit minority shareholders in Mainland China.

9.1.4 Two-Tier Board Structure    Mainland China's company law specifies that firms must have a two-tier board structure, which is similar to the German convention of having a supervisory board overseeing a board of directors. The revised Company Law of December 1999 required that all SOEs must set up a supervisory board.⁴⁰ The supervisory board must have at least three members. The membership of a supervisory board consists of shareholders and elected labor representatives and the members of the supervisory board cannot be the directors of the board or senior executives of the firm.⁴¹

To improve the effectiveness of supervisory boards, the CSRC made two amendments to the Company Law in October 2005. First, the CSRC mandated that at least one-third of the supervisory board's membership consist of elected labor representatives. Second, the supervisory board now has the authority to dismiss senior executives and the right to file legal complaints against senior executives.⁴²

In principle, the supervisory board has the responsibility to monitor the directors and management, especially financial control systems and financial statements. However, many members are from within the firm and the board largely rubber stamps the decisions of directors and management in practice.⁴³ Dahya et al.⁴⁴ (2002) conducted interviews with supervisors in Mainland China and concluded that, unlike those in other countries, Mainland Chinese supervisory boards are ineffective. Mainland Chinese supervisory boards play only an advisory role in the corporate governance process; they lack the power to discipline poorly performing executives and supervisors have no incentive, financial or otherwise, to serve as monitors.

9.1.5 Shareholder Rights    In 2006, Mainland China's Company Law was revised to mandate greater disclosure of information to stockholders. Shareholders elect directors and vote at shareholders' meetings but they also have access rights to company charters, shareholder lists and the minutes of meetings of both the supervisory board and the board of directors.⁴⁵

Mainland Chinese company law divides the rights of shareholders into “self-benefit rights” and “co-benefit rights” according to the purposes of the relevant right. Self-benefit rights (beneficiary rights) refers to shareholders' rights to acquire economic benefits including the right to request the distribution of a dividend, the right to request the distribution of residual assets, the right to transfer shares and the right to request share purchases. Co-benefit rights are shareholders' rights to govern or participate in the relevant company's governance including rights to participate in the company's decision-making, operations, management, supervision and control.⁴⁶

9.1.6 Disclosure and Transparency    In the process of capital market development and corporate governance reform, the Mainland Chinese legislative bodies and the relevant government agencies, regulatory institutions and self-regulatory organizations have attached great importance to the development of corporate information disclosure and actively promoted its improvement in terms of quality and transparency. In 2007, the CSRC imposed stricter requirements for disclosure of company information. Disclosure of material information must be made simultaneously to all parties and companies are required to have an internal process to ensure that the CSRC disclosure standard is met. To improve financial reporting quality, Mainland China's government committed to converge with international accounting standards from the 1990s. The most significant initiative was the introduction of the new Mainland Chinese Accounting Standards (CAS) in 2006. All listed companies are required to adopt the CAS effective from January 1, 2007. Overall, information disclosure by listed companies has improved with constant progress in terms of the accuracy, scope and depth of disclosed information as well as its use by investors and intermediaries.⁴⁷

9.1.7 Executive Compensation    Conyon and He (2016) report that executives in Mainland China are typically remunerated by cash salaries and bonuses.⁴⁸ Stock options and equity compensations were uncommon before 2006.⁴⁹ Conyon and He (2011) also found that CEOs of about 50 percent of public firms in Mainland China own shares.⁵⁰ According to a survey by Deloitte, the average salary paid to executives at A-share companies was 856,500RMB (around US$129,000), with a steady increase of approximately 5.6 percent between 2014 and 2015. About 50 percent of these are chairs of their companies, about 30 percent CEOs and about 20 percent other executives.⁵¹ The Nikkei Asian Review reported that the average compensation of the highest paid executives was one million RMB (US$147,000) in 2016. Executives in the financial industry continued to lead the pack with an average annual wage of 3.59 million RMB (around US$0.54 million), followed by those in real estate who made 1.86 million RMB (around US$0.28 million).⁵² As for the equity incentive, Deloitte found that restricted shares were more popular than stock options. A-share companies started to launch employee stock ownership plans in June 2014.

Previously, the compensation packages of SOE officers had no significant differences from those of employees. Bonuses and other incentive payments were reintroduced in 1979 and the payments had to be paid out of the entity's retained profits. The differential gap in payments to managers and employees was widened by a series of reforms in 1986 and 1988 from three to five times. The Shenzhen experiments in 1994 and 1996 resulted in a more standardized compensation system. The annual salary consists of a fixed base salary and performance salary. Furthermore, Mainland China's two-tier board structure requires compensation packages to be approved by the supervisory board (whose membership includes members of the Communist Party of China (CPC)), as well as explained to shareholders and publicized.⁵³

The reform of executive pay of SOEs gradually resulted in large pay gap between executives and ordinary employees, which is quite inconsistent with the ideology in Mainland China and tainted the public image of CPC. After President Xi took office in 2008, the CPC started capping the executive pay at SOEs to reinforce the President's policy of cracking down on lavishness. In 2014, the President directed executives at the country's large SOEs, including the Big 4 state-owned banks, to cut their pay.⁵⁴ From 2015, the CPC imposed a pay limit of 8,000 RMB (around US$1,288) per month on executive pay at SOEs, representing a pay cut of around 50 percent compared to previous years.⁵⁵

9.2.1 The Stock Exchange of Hong Kong Limited (HKSE)    The HKSE has a market capitalization of $3.37 trillion adjusted US dollars as of March 2017 although the primary trading currency is the Hong Kong Dollar. It is the sixth-largest exchange in the world before Euronext. As of October 31, 2016, the HKSE had 1,955 listed companies, 989 of which are from Mainland China (Red chip, H share and P chip), 856 from Hong Kong and 110 from other countries and regions (e.g. Macau, Taiwan, Malaysia, United States, Singapore, etc.). Hong Kong Exchanges and Clearing Limited owns the HKSE and is itself listed on the HKSE.

In its annual IPO review and outlook for 2018, Ernst & Young laid out the prediction based on the number of IPOs and proceeds raised for the year: 436 companies mopped up 230.4 billion Yuan (US$35.1 billion) from the A-share market. According to the South China Morning Post, the New York Stock Exchange ranked top in 2017 with US$39.5 billion in terms of proceeds raised, followed by Shanghai at US$20.9 billion and Hong Kong ranked third at US$16.5 billion with a total of 160 IPOs. The bullish performance of the Hang Seng Index (HSI), which gained 34 percent in 2017, was ranked first among global major indices including Nasdaq and the Dow Jones Industrial Average. Such performance benefited the IPO market and 28 overseas companies were attracted to listing in Hong Kong, the highest in six years, raising a total of HK$10.02 billion (around US$1.3 billion).⁵⁷

Hong Kong's business community has continuously been urged to seek improvements in corporate governance and to uphold the highest professional ethics and integrity. A number of important corporate governance initiatives have been carried out or are under way. The Hong Kong government and other corporate regulatory bodies such as the HKSE and the Securities and Futures Commission (SFC) are making progress in bringing good corporate governance standards into effect. Other non-profit institutions that promote better corporate governance practices include:⁵⁸

• The Hong Kong Institute of Directors (HKIOD)
• The Asian Corporate Governance Association (ACGA)
• The Hong Kong Institute of Certified Public Accountants (HKICPA)
• The Hong Kong Institute of Chartered Secretaries (HKICS)
• The Hong Kong Law Reform Commission (HKLRC).

9.2.2 OECD–Asian Round Table on Corporate Governance    The OECD–Asian Roundtable on Corporate Governance was established in 1991, with Hong Kong being the only Roundtable economy with a corporate governance code, i.e. the voluntary 1993 Code of Best Practice. It served as a regional forum for exchanging experiences and advancing reform of corporate governance while promoting awareness and the use of OECD Principles of Corporate Governance.⁵⁹

Today, most Asian Roundtable jurisdictions have developed codes and other guidance based largely on the OECD Principles. In recent years, there have been reviews of the existing codes with the addition of more specific and demanding expectations with regard to corporate behavior and enhanced monitoring. With recent updates, Hong Kong has moved on to the third generation of its Corporate Governance Code.⁶⁰

9.2.3 Hong Kong Institute of Directors (HKIOD)    The Hong Kong Institute of Directors (HKIOD) is a group of long-serving practicing and potential directors charged with responsibility as culture builders to promote corporate governance in Hong Kong. The goal of the Institute is to have good governance practice embraced by all types of businesses regardless of firm size and whether they are private companies or non-profit organizations.⁶¹

9.2.4 2016 HKIOD Corporate Governance Score-Card Project    The Score-Card project by the HKIOD was set up to evaluate corporate governance of Hong Kong companies on a regular basis as well as to encourage the adoption of best practices of corporate governance through a systematic evaluation of current practices.⁴⁸ According to the CEO of HKIOD, Dr. Carlye Tsui, there has been promising testimony reflecting the Hong Kong market's increasing awareness of and emphasis on corporate governance.

The HKIOD organizes over 100 professional education and training courses for company directors every year. The scope of these professional courses covers rules and regulations, strategic direction, board culture and practice, and director competency, with special emphasis on issues such as the role of the independent non-executive director, board-level risk management and ESG reporting. The Score-Card monitors the Hong Kong market with enhanced assessment criteria. Moreover, it helps Hong Kong to design bespoke education and training programs to meet the specific challenges faced by company directors in the market.⁶²

9.2.5 Current Status and Challenges of Corporate Governance    Hong Kong has become the financial hub of Asia with a significant reliance on financial services although it faces increased competition from stock markets in Shanghai and Shenzhen. The financial regulatory framework of Hong Kong listed companies is guided by the Company Ordinance of 2014, the Securities Law from the Securities and Futures Ordinance (Cap. 571) and the Main Board Listing Rules of 2016. The HKSE has a total of 1,955 listed companies, with a total market capitalization of US$3.37 trillion (World Federation of Exchanges (WFE), 2016). The board structure of Hong Kong listed companies requires at least three independent non-executive directors and they must represent at least one-third of the board.

The board structure is mainly unitary but firms are free to choose their own board structure within the guidance of the HKSE. According to an OECD report on corporate governance in Asia, in 2012, 75 percent of Hong Kong listed companies had a dominant shareholder on their board (for example, an individual/family or state-owned entity) who owned 30 percent or more of the issued shares (OECD, 2015).⁶³

Companies showing improvement in their corporate governance standards tend to have better opportunity to secure investors in the financial market. Among 84 listed companies that were surveyed in both 2012 and 2016 by the HKIOD, 75 percent report that they have enhanced their corporate governance performance. The Hong Kong government is making an effort to maintain its position in the international financial market by promoting corporate governance through relevant authorities to attract local and overseas investors.

The Chief Regulatory Officer and Head of Listing HKEX, Mr. David Graham, remarked during the launch of the HKIOD Corporate Governance Score-Card in 2016 that most companies had shown improvements in their corporate governance standards. Promoting good corporate governance among Hong Kong listed companies would continue to be one of HKEX's top priorities. However, according to the HKIOD Score-Card of 2016, recently listed companies and those newly added to the major Hong Kong indices had yet to meet the prevailing standards and their practices dragged other companies down.

Oxfam also ranked the 50 HSI companies based on their performance in corporate governance activities in 2016. Their performance reflects the strict governance framework for Hong Kong listed companies. According to the survey, corporate reporting indicates a compliance-based approach to corporate governance regionally with mandatory reporting in place for key issues such as ownership, audit and compliance and director conduct.

9.2.6 Influence of Culture in Corporate Governance and Family-Controlled Firms in Hong Kong    The principles of corporate governance are generic in nature but its practice continues to be subject to cultural influences. The PwC 2016 Global Family-Controlled Businesses Report involved interviews with 100 senior corporate executives of family-controlled enterprises (48 from Mainland China and 52 from Hong Kong). The report concluded that family business contributed much to the increase in the employment rate as well as to Gross Domestic Product (GDP) growth in Hong Kong. It also stated that more than 60 percent of the private sector in Hong Kong was accounted for by family businesses and that the city's top 15 families controlled assets amounting to 84 percent of GDP.

Corporate governance in Hong Kong had naturally been influenced by the British during the colonial period. However, it had not been successfully integrated with Chinese family companies. There was a gap between what the law intended to regulate and the conduct of typical Chinese companies. The regulation of corporate governance was not fully implemented as the existing laws did not reflect Chinese values and the social norms of the Hong Kong people. Despite the reported preference among Asian family firms for family-management succession, Asian family firms have increasingly recognized that, to meet the demands of global markets, they need to professionalize their entities (for example, by the appointment of professional non-family managers rather than family members, among others). The PwC Family Business Survey (PricewaterhouseCoopers, 2014) reported that nearly 40 percent of Asian family firms expressed the view that professionalizing the entity during the next five years (i.e., from 2015 to 2020) was a major challenge facing the entity.⁶⁴

A typical problem for family businesses across Asia is that they are reluctant to open up to outside professional management. Family owners felt challenged if external management and succession are considered better corporate governance for their firms. Eric Landolt, Head of Family Advisory for Asia-Pacific at UBS, draws the link explicitly between governance and recruiting external talent. He stated: “If you have a family-controlled business where the structures and the governance are vague, and it is not clear how the decisions are taken at the ownership level, that will probably not be attractive to external management. It will be challenging for those companies to attract key professional talent.”⁶⁵

9.2.7 Future Opportunity for Corporate Governance in Hong Kong    The Hong Kong Corporate Governance Code is a non-statutory document issued under the Rules Governing the Listing of Securities which applies only to companies listed on the HKSE. The corporate governance code states that the code provisions and the recommended best practices are not mandatory rules. Issuers have a high degree of flexibility on the manner of adopting these practices. It is recommended that legislation be promulgated to provide the corporate governance code with full statutory backing in order to create a uniform standard which ensures good quality of corporate governance.

The reports Investor Opinion Survey on Corporate Governance and the Investor Perspectives on Corporate Governance—A Rapidly Evolving Story published by McKinsey & Company, Inc. in 2000 and 2004 respectively have consistently reported that 70 to 80 percent of investors are willing to pay a premium for well-governed companies. According to McKinsey, the real challenge is to ensure that these corporate governance principles are embedded in sufficient detail in local legislation and subsequently implemented and enforced.⁶⁶

Thomas Mok, Principal of Mok & Cast, opined that for Hong Kong to maintain the status of an international financial center, it should gage and refer to the existing international standards adopted by the OECD. The OECD's concern is that if a corporate governance code lacks full statutory backing and is not consistent with the rule of law, this diminishes its fundamental requirements of certainty, transparency and enforceability, clear articulation of regulatory responsibilities, independence and accountability.

9.3.1 Legal Framework and Codes    A common law system operates in India.⁷¹ The corporate sector in India is governed by the Companies Act. The 1956 Companies Act, which has been amended several times, covers various corporate governance issues such as shareholder rights, directorships and disclosures. The Companies Act 2013 superseded that of 1956 to become effective on April 1, 2014. The Companies (Amendment) Act 2017 was a significant legal reform in India, aligning Indian company law with global standards. The Act introduced significant changes in accountability, disclosures, investor protection and corporate governance.

India's largest industry and business association, the Confederation of Indian Industry (CII), took the first institutional initiative to develop and promote a codified system for corporate governance in 1998 with the publication of the Desirable Corporate Governance: A Code.⁷² The second major corporate governance initiative is India's prime regulatory authority, the SEBI, which regulates the securities market and stock exchanges. The SEBI (Listing Obligations and Disclosure Requirements) Regulations of 2015 was a transformation from contractual (listing agreement between the stock exchange and the listed company) to legal obligations,⁷³ stipulating the obligations of listed entities. The regulations also require companies to announce publicly any substantial changes in shareholding and changes of control or ownership.

Corporate governance is also driven by the two biggest and most liquid stock exchanges in India, the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE). Established in 1875, the BSE is Asia's first and the fastest-growing stock exchange. The BSE is older than the Tokyo Stock Exchange and ranks twelfth, with a 2.2 percent share of market capitalization of the 20 largest stock exchanges and groups in the world (2013–2016).⁷⁴ The NSE is the leading stock exchange in India, with the fourth-largest equity trading volume in 2015 according to the World Federation of Exchanges (WFE).

9.3.2 Ownership Structure and Board Structure    Concentrated ownership is the main feature of Indian companies since independence. Most large corporations are SOEs and family-owned companies. During the 1990s, India's highly centrally planned and regulated economy transformed into a market-oriented economy. These open market reforms enabled private institutional investors to invest in the large market capitalized firms of India. Economic reforms and globalization further attracted more retail investors and foreign investors. Non-institutional shareholders including corporate bodies, qualified foreign investors, individual shareholders and non-resident Indians are part of the ownership pattern of corporations.⁷⁵

The board structure in India is one-tier and the 1956 Companies Act requires that the minimum number of directors in a company is three.⁷⁶ The maximum number of directors is 15 but an exception can be made by a special vote of all the shareholders at a general shareholders' meeting.

9.3.3 Shareholder Rights    Shareholders' meetings are classified as annual general meetings (AGMs), extraordinary general meetings (EGMs) and meetings convened by the NCLT in India. AGMs are required to be held every year on issues such as financial performance and the appointment of new boards of directors (BODs). The 1956 Companies Act stipulates various shareholder rights including the following:⁷⁷

• To elect or remove directors and engage in management
• To attend and vote on resolutions at meetings
• To enjoy the profits of the company in the form of dividends
• To apply to the court in the case of oppression or mismanagement
• To monitor documents and registers to be kept by the company under the regulations and to ask for extracts therefrom.

9.3.4 Disclosure and Transparency    Under the 1956 and 2013 Companies Acts, the annual balance sheet, profit and loss account, and reports by the board and the auditors of Indian companies are submitted to the board for approval and for adoption by shareholders at the AGM.⁷⁸ Listed companies have three additional requirements, namely to submit annual accounts to the stock exchange where the company is listed, and to submit a cash flow statement and the abridged unaudited financial summaries every quarter.⁷⁹

SOEs are required by the 2013 Companies Act to disclose financial reporting standards on their company websites. Listed SOEs are required to follow SEBI's disclosure requirements including disclosure of financial statements and information on business operations, audit committee composition, compliance with accounting standards, compensation of directors and compliance with the company code of conduct. Regarding accounting and audit requirements, SOEs must prepare their accounts in accordance with the Indian Accounting Standards, which are reportedly based on the International Financial Reporting Standards (IFRS).⁸⁰

Clause 49 of the Listing Agreements of SEBI requires companies to provide specific corporate disclosures of the following:⁸¹

1. Related-party transactions
2. Accounting treatment
3. Risk management procedures
4. Proceeds from various kinds of share issues
5. Remuneration of directors
6. Management Discussion and Analysis section in the annual report discussing general business conditions and outlook
7. Background and committee memberships of new directors as well as presentations to analysts.

9.3.5 Executive Compensation    The 1956 and 2013 Companies Acts provide for limits on executive compensation, evaluation methods and requirements for shareholder approval. The remuneration packages of individual directors generally are salary, benefits, bonuses, stock options and pensions.⁸² According to Bloomberg, CEOs of companies listed in India's Sensex Index earn 229 times more than the average worker, the second-biggest gap worldwide in 2017.⁸³

9.3.6 Kotak Committee Reform    The SEBI Panel under the chairmanship of Uday Kotak proposed recommendations on Indian corporate governance in 2017. The “Kotak Committee” reviewed the corporate governance principles and made recommendations to make governance more transparent as well as to improve the governance standard of listed companies. The recommendations suggested changes that relate to board diversity, board and committee independence, related-party transactions and director remuneration, among other factors.⁸⁴ The Ministry of Finance and SEBI would finalize the proposed changes in board monitoring and implementation of the Companies Act 2013 and the existing SEBI regulations in line with international practices. It was proposed that the boards of listed companies have at least six directors, with half of the board consisting of independent members rather than one-third as is the current requirement. Independent disclosures are expected to help boost investor confidence. In compliance with the 2013 Companies Act requirement that there be at least one woman on the board, the Kotak Committee recommends that at least one of the independent directors should be a woman.⁸⁵

The effective implementation of the 2013 Companies Act in India has been challenging for the boards of directors of many Indian public companies as the Act requires changes to their corporate governance practices. Some of the implementation challenges of the 2013 Companies Act relate to an increase in directors' fiduciary duties, accountability and perhaps liabilities:

1. The increased scope of responsibilities for the Nomination and Compensation/Remuneration Committee which require directors to have the right set of skills to serve on boards;
2. Board oversight of CEO succession planning and evaluations of executives;
3. A mandatory minimum of at least one female independent director for most listed companies;
4. Board oversight and proactive role in risk management particularly as regards cybersecurity risks;
5. The requirement of the establishment of a corporate social responsibility (CSR) committee and that the company spend 2 percent of net profits on CSR-related activities such as environmental, social and governance initiatives.

9.4.1 Development of Corporate Governance    The Financial Crisis of 1997 to 1998 had a great impact on Indonesia's society, economy and politics. The incident sent the number of Indonesians living in poverty skyrocketing at the time. Some experts believe that institutional deficiencies were the main factors contributing to Indonesia's economic recession including imperfect central bank regulation, irregular practices within banks and lack of financial regulation.⁸⁶ Since then, Indonesia has recognized the importance of corporate governance and has made a number of improvement efforts. The government and other private institutions have taken measures including the establishment of corporate governance institutions, the development and revision of relevant laws, and improvement of corporate governance standards. In 1999, under the coordination of the Coordinating Minister for Economic Affairs, a national corporate governance committee was established, followed by the promulgation of Indonesia's first Code of Good Corporate Governance in 2001. The code was revised in 2006. In the following years, the Capital Market and Financial Institutions Supervisory Body made a series of changes and oversaw their implementation to improve the protection of investors. In 2006, corporate governance regulations for banks were published, monitored and enforced by Bank Indonesia. In addition, Indonesia has enacted a series of legislative reforms on governance. Examples include the Law on Foreign Investment adopted in 1967 and amended in 2007, the International Environmental Law adopted in 1995 and amended in 2007, the Law on Insurance Business adopted in 1992 and the Competition Law adopted in 1999.⁸⁷

9.4.2 Regulatory Framework    Indonesia is a civil law country. The main law on corporate governance is Law No. 40 of 2007 on Limited Liability Companies (the Company Law). The Company Law covers matters relating to company building, capital issues, corporate governance, shareholder rights and meetings, significant corporate actions, and dissolution and liquidation of companies. In addition to the Company Law, listed companies are also bound by Law No. 8 of 1995 on the Capital Markets (the Capital Market Law). Under the Capital Market Law, listed companies are required to have at least 300 shareholders, who own their shares and have limits on capital set by government regulations. In addition to specific governance of listed companies, the Capital Market Law also covers issues such as minority shareholder protection, insider trading, market manipulation, fraud and conflict of interest trading.

Although the Company Law covers a wide range of corporate governance regulations (mainly on the duties of the board of directors), it does not provide guidance on specific corporate governance processes when there are no government regulations to supplement and support it. Consequently, a company's articles of association (AOA) is usually the key document that determines the general governance requirements of the company. Listed companies must also comply with the regulations and rules issued by the Financial Services Authority or Otoritas Jasa Keuangan. In 2006, the National Committee on Governance also published the Code on Good Corporate Governance, which provides further guidance for good corporate governance practices in Indonesia.

9.4.3 Ownership and Board Structure    Indonesia has a two-tier board structure which consists of an independent board of supervisors and a management committee. The board of supervisors is composed of non-executive members and independent members. It is responsible for supervising and advising the management committee. The management committee is composed mainly of executive directors and is responsible for the management of the company and the operation of its business. The Corporate Governance Code requires limited liability companies to have at least one director and listed companies must have at least two directors and at least one independent director.⁸⁸

As for ownership structures, Indonesia has concentrated ownership with many private companies owned by a single controlling shareholder, family members or a small number of shareholders. The number of controlling shareholders generally does not change despite the dramatic expansion of the company. This concentrated ownership structure often lacks corresponding regulation and supervision, which leads to the underdevelopment of Indonesia's capital markets. In addition, some major business groups are established in the form of subsidiaries controlled by the parent company. The resulting cross-shareholdings and lack of transparency tend to result in opaque ownership structures. Such a structure could be detrimental to the interests of individual shareholders.⁸⁹

9.4.4 Shareholder Rights    According to the Company Law, the board of directors (BOD) is generally responsible for the operation and management of the company, under the supervision of the Board of Commissioners (BOC). However, the BOD may not make decisions on certain matters without the approval of shareholders. These matters are regulated by the Company Law and they include:

• Revising the company's articles of association including increasing or reducing certified capital, reducing subscription and paid-up capital or repurchasing the company's capital.
• Making acquisitions, mergers or spin-offs or plunging the company into bankruptcy or liquidation (which requires 75 percent voting rights of shareholders).
• Transfer or guarantee of all or most of the assets of the company (which also requires 75 percent voting rights of shareholders).

In addition, other rights of shareholders include:

• To approve the fees to be paid to the members of the BOD and the BOC at the AGM.
• To approve the annual work plan and budget before the beginning of the financial year.
• To approve the payment of dividends into the statutory reserve fund in addition to the provisional dividend.
• To approve the annual financial statements and the management of acquittals (generally carried out annually).
• To appoint members to the BOC and BOD (including filling vacancies).

Shareholders in private companies can add additional restrictions on the board in the Articles of Association (whether or not approval from the BOC or other shareholders is required). For listed companies, the BOD must comply with the Indonesian Financial Services Authority (Otoritas Jasa Keuanganm, OJK) rules when it requires shareholders to approve certain transactions (including conflict of interest transactions and major transactions).⁹⁰

9.4.5 Disclosure and Transparency    In Indonesia, the BOD is responsible for corporate disclosure and transparency. On November 10, 1995, Law No. 8 of 1995, the Capital Market Law, came into effect; it describes the main disclosure rules in Indonesia. According to the Capital Market Law, actions to disclose and make information available to the public are largely determined by the Indonesian Capital Market and Financial Institution Supervisory Agency. From January 1, 2013, this function was performed by the Indonesian Financial Services Authority (Otoritas Jasa Keuangan, OJK) as the new capital markets regulator.⁹¹

Under the OJK regulations, all material information about a listed company must be disclosed within two working days. In addition, there are other reporting and disclosure requirements (including general or financial information, etc.) that require enterprises to disclose specific corporate matters which include:

• Annual and semi-annual operating results of the enterprise.
• Certain important transactions that do not conform to the scope of shareholder approval.
• Certain related-party transactions.
• General management support agenda and results of general management support.
• Any private placement by the company (permission is granted only in limited circumstances).
• Conversion of convertible securities into shares, declaration of dividends, alteration of the capital of the company.
• Any material information that may affect the value of listed securities of a listed company or may affect an investor's investment decisions.⁹²

9.4.6 Executive Pay and Performance    In 2006, the Indonesia Code of Good Corporate Governance required the disclosure of executive compensation policies and the total compensation of boards. The code stipulates that detailed individual directors' compensation policies should be disclosed in the company's annual financial statements. In addition, an item on the AGM should be included to provide shareholders with an opportunity to discuss remuneration matters. According to the code, directors' remuneration may consist of fixed and variable components. The fixed component is usually the base salary and the company is required to provide comparison of the executive salary with that of another in a similar company. The variable component is based on the contribution of executives to the company's short- and long-term financial performance, and consists of annual bonuses based on KPIs.⁹³

9.5.1 Legal Aspect    In Japan, the corporate governance rules are developed from three legal sources. The first is the Companies Act. The Companies Act along with its subordinate regulations sets forth the basic principles that a company needs to abide by regarding the rights and obligations of management, the organizational structure, the disclosure of information, etc. The Companies Act applies whether companies are listed or not. The second law is the Financial Instruments and Exchange Act. This Act, along with its subordinate regulations, requires listed companies to disclose issues relating to corporate governance by way of filing annual securities reports or quarterly reports, disclosing material information in a timely manner by way of extraordinary reports and submitting internal control reports to the authorities. The third is the securities listing regulations published by the Tokyo Stock Exchange (TSE). The main corporate governance requirements for listed companies are to submit corporate governance reports and to elect and disclose the names of at least one “Independent Officer.” The Independent Officer is an outside director or outside statutory auditor who does not have a conflict of interest with shareholders.⁹⁴

9.5.2 Cultural Impact    Japanese corporate culture is often described as a family system which is based on the principles of a traditional family. The seeds of this family concept of companies are deeply rooted in the Japanese culture of obedience, hierarchy and loyalty.⁹⁵ The Confucian ethic of traditional lifetime relationships in a family was extended to the company. According to cultural theories, the kaisha (company) symbolizes the organization in which people are not only united by contractual relationships but includes an element of association resembling that of a family.⁹⁶ “The company is the people” is a common saying in Japan.⁹⁷ By characterizing itself as a family unit, the company has achieved a greater level of loyalty between management and employees. There is a solidarity among employees to protect each other as they believe that whatever they do is done for the company.⁹⁸ Such a cultural feature significantly influences corporate governance in Japan. It improves the cohesion of the enterprise and motivates the staff. Because staff have a sense of ownership in the company, they will set personal interests aside for the greater good of the company, which may indirectly decrease the agency problem. However, such cultural features also enhance managerial power. Staff will follow their leader's advice absolutely, losing the opportunity for personal development.

9.5.3 Cross-Shareholding    The structure of a large publicly traded company in Japan is traditionally characterized by cross-shareholding (keiretsu), referring to mutual shareholding through a network of companies that are interconnected whereby each company holds shares in the other companies. Keiretsu literally means “economic line-ups” and includes more than what is covered by the concept of cross-shareholding. Keiretsu is a structural arrangement of Japanese firms characterized by close business relationships intertwined with long-term commitments among members. There are various types of keiretsu but the main type is the keiretsu corporate group with the primary bank at the center.⁹⁹ Normally, the shares held under these ongoing stable shareholding arrangements constitute the controlling portion of the firm's shares.¹⁰⁰ There is a mutual understanding among the companies that these shares are not to be traded but to be kept as a safety mechanism. Member companies within a keiretsu offer each other preferential treatment in commercial and financial transactions. They exchange information through the primary bank and in times of crisis, they are expected to help each other. Generally, keiretsu contributed to the relatively stable and concentrated ownership structure of Japanese companies.¹⁰¹

9.5.4 Long-Term Employment    Long-term employment is a typical feature of the Japanese corporate governance model. This system is not regulated under the legal system but is based on informal norms and practice. An employee is recruited directly upon graduation and is expected to remain in service with the company for his or her entire career. He or she can expect not to be fired or discharged except under some extraordinary circumstances.¹⁰² The basis of this agreement is the commitment of employers to provide secure employment to their employees in return for loyalty and “lifetime” service. The modern Japanese long-term employment system was allegedly designed as a compromise entered into between management and unions aimed at overcoming existing labor problems. It is a mutually beneficial bargain rather than a solution imposed by social norms.¹⁰³ Long-term employment in its present form developed as a result of mutual economic benefits. It contributed to higher productivity, which benefited both shareholders and management through increased profits, as well as employees through greater employment security. The Japanese government supports lifetime employment because it contributes to reducing tensions between employers and employees. There are several elements of the long-term employment system that are typical for Japan such as recruitment of graduates, seniority-based wages, internal transfers based on a rotation system, and on-the-job training in firm-specific skills, making it extremely difficult for employees to take employment with other firms.¹⁰⁴

9.5.5 Board Structure    Since the 1990s, many Japanese corporations have improved their information disclosure and auditing functions to ensure the effectiveness of their governance by bringing in outside directors and outside auditors, separating their decision-making mechanisms from their business operation mechanisms, introducing a system of operating officers and carrying out other reforms as well.¹⁰⁵ But changes are afoot in Japan's overall approach to corporate governance in recent years.

The amended Companies Act in Japan was enacted in June 2014 and came into effect in April 2015.¹⁰⁶ The amendment introduces a new corporate governance structure for large public companies in Japan through an audit/supervisory committee, and new rules for outside directors. The audit/supervisory committee governance structure is intended to facilitate the appointment of outside directors and to provide a corporate governance system that is more familiar to foreign investors. Japan's Corporate Governance Code, which was reformulated in 2015, is intended to make Japanese corporate governance measures more consistent with those of Western governance systems. The code requires that boards have at least one outside director. There are currently two governance structures for listed companies in Japan. These structures are the Statutory Auditor System and the Full Committee System. The Statutory Auditor System is the traditional two-tier board system whereas the Full Committee System is an alternative structure introduced in 2003. Companies can adopt their own governance structures with voluntary boards such as management advisory boards. Statutory auditors are different from independent outside auditors as they are company board members in charge of monitoring the directors and managers from both an accounting and operational standpoint. The full governance committee system in Japan consists of the audit, nomination and remuneration committees. Each committee is composed of at least three directors and a majority of members in each committee must be outside directors. The 2015 amended Companies Act contains a new “comply-or-explain” rule whereas listed companies that do not have any outside directors on the board must disclose in their annual business reports “why the company believes that having outside directors is not appropriate.”

The Japanese Corporate Governance Code took effect in June 2015 and sets rules regarding whistle-blowing, disclosure, stakeholders' rights and many more. One focus of the Corporate Governance Code is the board of directors, including its composition and responsibilities. According to the code, “The board should be well-balanced in knowledge, experience and skills to fulfill its roles and responsibilities, and it should be constituted in a manner to achieve both diversity and appropriate size.” It also states, “Independent directors should fulfill their roles and responsibilities with the aim of contributing to the sustainable growth of companies and increasing corporate value over the mid- to long-term. Companies should, therefore, appoint at least two independent directors who sufficiently have such qualities.” This implies that it is critical to appoint qualified persons and make the best use of them. Japanese companies have responded well to this call. In July 2014, approximately 65 percent of TSE listed companies had outside directors and by July 2015, nearly 90 percent did. And as of December 2015, all Nikkei 225-listed companies had at least one outside director.¹⁰⁷

The Japanese corporate governance challenges are:

1. Board gender diversity: a very small portion (3 percent) of directorships are held by women.
2. Former executives and chairs remaining in “advisor” roles beyond the end of their formal tenure.

9.5.6 Shareholder Rights and Powers    Under the Companies Act, the operation of a company is handled by the directors except that material issues (as defined below) have to be approved by a shareholders' meeting. Some issues require a greater proportion of voting right than others (e.g. amendments to the articles of incorporation, mergers, etc.).

The rights and powers of the shareholders' meetings include the following items:

• Amendments to the articles of incorporation;
• Appointment and dismissal of directors and auditors;
• Approval of financial statements (except for companies which satisfy certain requirements);
• Approval of mergers, demergers, share exchanges/transfers or business transfers (with de minimis exceptions);
• Payment of dividends (unless otherwise provided for in the articles of incorporation);
• Issuance of shares or stock options at especially favorable prices; and
• Determination of directors' remuneration and discharge of directors' liabilities.¹⁰⁸

9.5.7 Disclosure and Transparency    Establishment and disclosure of internal control has become increasingly relevant with respect to ensuring the reliability of financial reporting. To ensure that the information disclosed in the securities market is reliable, the Japanese version of the Sarbanes-Oxley Act (the Financial Instruments and Exchange Law) was enacted, which requires the following:¹⁰⁹

• To ensure the appropriateness of the information released in financial reports, directors must establish and operate an effective system of internal controls within their companies.
• Companies must evaluate the effectiveness of their internal controls as they relate to financial reporting and disclose this information to investors in the form of “internal control reports.”
• Companies must be audited to ensure that their evaluation methods and results are appropriate.

9.5.8 Executive Pay and Performance    Executive compensation is mainly regulated by the Companies Act. All companies must disclose to shareholders the annual total amount of compensation paid or agreed to be paid to executives in their annual financial reports. These amounts can be considered with respect to the total number of officers and directors respectively. Listed companies must disclose information in great detail to the public with regard to the company's policy on executive pay, the names of the executives paid at or above ¥100M (around US$900,000), and the amount of personal compensation each executive receives. Such companies are required to disclose this information in their annual securities reports in the manner prescribed by the Financial Instruments and Exchange Act (FIEA). In addition, listed companies must provide a similar level of disclosure in their corporate governance reports in accordance with the format prescribed by the relevant stock exchange rules.¹¹⁰

9.6.1 Development of Chaebol    The word Chaebol is constituted of Chae (wealth or rich) and bol (clan or family), and Chaebols are family-owned enterprises in South Korea.¹¹¹ The Confucian cultural influence promoted hierarchical business (in particular the wealthy family) tradition in the South Korean corporate structure, which led to strong dominant leadership within the Chaebol.¹¹² The Chaebol was largely controlled by family ownership and management that performed in a self-interested manner, disregarding the rights of the minority shareholders.¹¹³ This unique business group in South Korea is known for its abuse of power and operates with limited transparency.¹¹⁴

The Chaebol in the late 1950s operated with the support of the government and has always been heavily influenced by the government's corporate agenda.¹¹⁵ For example, the Samsung Group, the former Leogki Geumseong (Lucky-Goldstar) now the LG Group, and the Hyundai Motor Company all received favors and concessions from the government. During the 1960s, Chaebols opened up to the foreign market. Companies attracted foreign investment, including SsangYong Group, Hyosung Corporation, Hanwha Group (formerly Korea Explosives Co.) and Hanjin Group. South Korea experienced high economic growth in the 1970s. Current large Chaebols in South Korea include Lotte Group, Doosan Group, Kolon Industries, former Sunkyong Group (now SK Group or SK Holding) and Daewoo Group.¹¹⁶ South Korea was transformed to a democracy in the 1980s. During this period, the Chaebol influenced political elections by providing huge financial support to politicians.¹¹⁷

Before the 1997 Asian Financial Crisis, the Chaebol aimed at pursuing economic growth and increasing market capitalization at the expense of shareholders' value.¹¹⁸ According to Gul and Kealey (1999), Chaebol firms have a higher level of debt than non-Chaebol firms. The unique characteristics of Chaebol are the concentrated relationships of family members and the diluted role of the board of directors, which leads to problematic agency problems. The owners are family members, who control the resource allocations and make self-serving non-value-maximization decisions that often impair minority shareholders' interests.¹¹⁹ In the 1990s, the World Trade Organization (WTO) reported that Chaebols owned around two-thirds of the total market share in South Korean manufacturing¹²⁰ and a held a dominant position in the South Korean economy.

9.6.2 Drivers of Corporate Governance

9.6.3 Legal Framework and Corporate Litigation

9.6.4 Primary Areas of Corporate Governance

9.7.1 Malaysian Code of Corporate Governance (MCCG)    The Malaysian Code of Corporate Governance (MCCG) has been a significant tool for corporate governance reform in Malaysia. It has positively influenced the corporate governance practices of companies, especially listed companies, through the “comply-or-explain” approach to listing requirements such as disclosure of application of principles, disclosure of the extent of application of best practices and the requirement for explanation of any deviations. MCCG focuses on four major areas, which include the board of directors, directors' remuneration, shareholders, and accountability and audit. The code is hybrid in nature, similar to the Combined Code on Corporate Governance in the United Kingdom.¹⁵²

MCCG was reviewed in 2007 and 2012 to ensure that it remains relevant and is aligned with globally recognized best practices and standards. It introduced quality criteria for directors such as appropriate continuous education, skills, knowledge, expertise and experience, professionalism, integrity, and in the case of independent directors, ability to act independently. In 2017, MCCG was revised and the new version superseded earlier editions by taking on a new approach to promote greater internalization of corporate governance culture. The proposals (“apply or explain”) seek an alternative to provide clear and meaningful explanations of how firms have adopted the core practices and achieved the intended outcome of each practice.¹⁵³ Bursa Malaysia has also launched an Environmental, Social and Governance (ESG) Index for publicly listed companies (PLCs). This ESG Index is expected to increase the number of listed companies which conform to good corporate practices. This in turn will attract Socially Responsible Investment (SRI) funds. Bursa Malaysia believes that markets can thrive if investor protection is maintained. As a result, Malaysia was ranked fourth among 142 countries for its commitment to investor protection by the World Economic Forum (2011).¹⁵⁴

9.7.2 Ownership Structure    Concentration of ownership and control in Malaysian companies and conglomerates varies between the government, families and other institutions. In 1969, there was an emergence of companies owned by ethnic Malaysians (Bumiputera) and the government, which initially had 1.5 percent ownership, in order to overcome the dominance of the Malaysian corporate sector by foreigners, who owned 62.1 percent, and by the Chinese, who owned 22.8 percent. The continued quest to dissolve foreign/Chinese ownership of Malaysian corporate equity lingered over time until the United Malays National Organization (UMNO) formed a multi-party coalition (Barisan Nasional) which reduced the influence of the Malaysian Chinese Associations (MCA) in their government. Ten years after the New Economic policy program, they managed to increase the Bumiputeras share of corporate holdings by 12.5 percent. In 1981, Mahathir Mohamad was appointed prime minister and the quest continued to strengthen the Bumiputeras' presence in Malay ethnically owned corporations.

With the help of Daim Zainuddin, the prime minister was able to incorporate large companies led by Malay capitalists with international standards after one decade. By the mid 1990s, there were many PLCs controlled by ethnic Malays with high political connections who received government concessions and patronage from the government. This resulted in a significant increase in corruption and transfer of wealth between top politicians and business people in Malaysia. During the Asian Financial Crisis, many of these “well-connected companies” did not survive. After the crisis, the concentration of the elite business class in Malaysia was dissolved, especially as regards the top 100 firms at that time in KLSE.¹⁵⁵ Currently in Malaysia there are two predominant types of ownership structure. They are pyramidal ownership and golden share ownership.

9.7.3 Pyramidal Ownership    Pyramidal structure is defined as “a situation in which the same entrepreneur, through a chain of control relations, controls many firms.” This means that the ultimate owner owns the majority of one firm that in turn owns the majority of another firm. This type of ownership structure is most common with family-owned firms, which represent a significant number of active firms in Malaysia.

9.7.4 Golden Share Ownership    The Malaysian government holds a single unit “golden share” which it uses to exercise control over essential decisions which are of national interest. It is used by the government to influence decision-making in some strategic industries. These Malaysian Government Linked Companies (GLCs) control the selection of the board of directors, the right to speak at general assembly meetings and the right to oppose any decision made by the board of directors that would potentially conflict with government policies.

A paper by A. B. Che-Ahmad and A. S. Mustafa (2017) shows that the ownership-control structure of the top 100 firms listed in BM use pyramid structure and golden shares. Most listed firms are family-owned firms which control their affiliated firms using the pyramidal ownership structure while golden shares allow the government to direct firms' strategic decisions and to nominate the board of directors.¹⁵⁶

9.7.5 Board Structure    The board of directors is charged with ensuring the alignment of the firm's activities and its specified objectives. The 2017 update of the MCCG stated that the positions of chair and CEO should be held by different individuals. Separation of the positions of chair and CEO promotes accountability and facilitates division of responsibilities between them. In this regard, no one individual can influence the board's discussions and decision-making. The responsibilities of the chair should include leading the board in its collective strategic oversight of management while the CEO focuses on the business and day-to-day management of the company. This division should be clearly defined in the board charter.

9.7.6 Independent Directors    Board composition influences the ability of the board to fulfill its oversight responsibilities. An effective board should include the right group of people with an appropriate mix of skills, knowledge, experience and independence that fit the company's objectives and strategic goals. The 2017 MCCG mandates that at least half of the board must be comprised of independent directors. For large companies, a majority of the board must be comprised of independent directors. In prior publications, the MCCG stated a limit of nine years on the tenure of independent directors. This has been relaxed, now stating that if the board intends to retain an independent director beyond nine years, it should justify this and seek shareholder approval at the annual shareholders' meeting. If the board continues to retain the independent director after the twelfth year, the board should seek annual shareholder approval through a two-tier voting process.

9.7.7 Remuneration    The MCCG 2017 pointed out that director remuneration policies which do not appropriately align directors' remuneration with company strategy and performance can diminish shareholders' returns, weaken corporate governance and reduce public confidence in business. Companies are encouraged to fully disclose the detailed remuneration of each member of senior management on a named basis.¹⁵⁷

9.7.8 Current Status of Corporate Governance    According to the third edition of the Corporate Governance Guide issued by Bursa Malaysia in 2017, a range of reform measures have been implemented over the years to strengthen the corporate governance ecosystem.

• The introduction of the new Companies Act in 2016.
• The release of the Malaysian Code on Corporate Governance in April 2017 (“MCCG”) Bursa Corporate Governance Guide 2017 (third edition).
• This latest incarnation of the Guide has been developed to reflect the new modes of thinking as well as the “CARE” (Comprehend, Apply and Report) concept that underpins the MCCG. The CARE concept urges companies to effect the spirit behind the practices while appreciating the significance of the principles in supporting long-term value creation.¹⁵⁸
• Enhancements to the corporate governance disclosure framework under Bursa Malaysia Securities Berhad Listing Requirements (“Bursa Securities Listing Requirements”).

These generate practical efforts to ensure and promote more transparent and meaningful application of good governance practices which stakeholders can rely on for their investment decision-making and for keeping up to date with the activities of the company.¹⁵⁹

An international survey conducted by ROSC (Report on the Observance of Standards and Codes) on corporate governance assessment showed Malaysia in fourth place among the 10 Asian countries that were evaluated. Malaysia received a corporate governance enforcement score of 4.9, an increase from a previous score of 3.5, and an institutional mechanism and corporate governance culture score of 3.8 (Chantanayingyong, 2006).¹⁶⁰ Improvement in corporate governance practices in Malaysia could be observed from the scores. This could be due to the positive influence of the government on corporate governance in Malaysia and the consistent updates of the MCCG to ensure best practices of corporate governance in Malaysia.¹⁶¹

9.8.1 Development of Corporate Governance in the Philippines    In 1999, there was a shocking corporate scandal in the Philippines. BW Resources Corporation's share price hit an all-time high in 1999 and then collapsed in the same year. The scandal has tarnished the image of the stock market and undermined the confidence of private investors. The scandal was the result of manipulation of its financial performance by BW Resources' management to achieve the goal of boosting the value of the company in a highly competitive global market. In addition, the Asian Financial Crisis of 1997–1999, the collapse of the Nasdaq index, and the abuse of power by some corporate giants have highlighted the need for proper disclosure and transparency in conducting business. Recognizing this need, the Securities and Exchange Commission of the Philippines (SEC) began efforts to promote good corporate governance. On April 5, 2002, the SEC released the Code of Corporate Governance through SEC Memorandum Circular No. 2, Series of 2002.¹⁶²

9.8.2 Regulatory Framework    The Securities and Exchange Commission (SEC) of the Philippines and the Philippines Stock Exchange (PSE) are primarily responsible for developing corporate governance guidelines, monitoring corporate compliance and regulating the domestic stock market. To improve corporate governance in the Philippines, the Philippines Stock Exchange has issued the Consolidated Listing and Disclosure Rules, the Philippines Mineral Reporting Code and other corporate governance guidelines and regulations.¹⁶³

Due to the increasing complexity of business transactions, the SEC Philippines established a set of board-level and discretionary compliance guidelines based on the Code of Corporate Governance in 2009 which includes the expansion of non-executive outsiders on the board of directors, the definition of ownership, the risk management system and the enhancement of the independence of the board of directors. The code also takes into account the OECD's “transparency” principles of corporate governance by detailing corporate disclosure regimes including periodic financial statements, information and proxy statements required by listed companies as well as other significant disclosure regulatory documents.¹⁶⁴

9.8.3 Ownership and Board Structure    In the Philippines, concentrated ownership structures of listed companies dominate business or extended family groups. According to the Claro survey in 2016, the average public ownership of listed companies accounts for 36 percent of the total outstanding shares. However, some older companies actually have higher public ownership.

The average number of independent directors in a company is only 2.45, which is slightly higher than the requirement of two directors in the Corporate Governance Code and the average number of non-executive directors is 4.12. With an average board size of 9.32, the proportion of independent and non-executive directors suggests that outsiders are in the minority. Coupled with the equity concentration system, listed companies are effectively under the control of the holding group. In addition, the average number of independent directors in the audit committee and the nominating committee was less than two. In fact, these two functions are essential to shareholder supervision and monitoring of the board of directors. In developed countries, of directors appointed to audit committees, independent directors form the majority.¹⁶⁵

9.8.4 Shareholder Rights    The main shareholder rights in the Philippines are described in the following sub-sections.¹⁶⁶

9.8.5 Disclosure and Transparency    The level and quality of disclosure in a particular country greatly influences the inflow of capital and strengthens investor confidence in corporations and local businesses, especially with regard to foreign investors. Both disclosure and transparency help to ensure ethical and professional conduct. As a result, the country can raise more capital, make access to development finance more equitable for enterprises and enable enterprises to obtain a more efficient allocation of resources in the market.¹⁶⁷ In general, disclosure and transparency build confidence among stakeholders by strengthening the capacity of capital markets to operate and expand business participation thereby contributing to the creation of sustainable wealth.

The Philippine SEC released a new Code of Corporate Governance for Publicly-Listed Companies on November 22, 2016. The main feature of the Code is the application of the “comply-or-explain” approach, which combines voluntary compliance with mandatory disclosure. While companies are not required to enforce compliance with the code, they are required to disclose in their annual corporate governance reports whether their business practices comply with the code, to identify any irregularities and to explain the reasons for the irregularities. The new code has 16 principles and is divided into five parts. The second part deals with disclosure and transparency. Principle 2 defines the roles and responsibilities of the board of directors, which should be clearly understood by all directors as well as by shareholders and other stakeholders. Principle 8 focuses on enhancing corporate disclosure and requires companies to develop disclosure policies that are realistic and in line with best practices and regulatory expectations.¹⁶⁸ The Philippine Stock Exchange's Consolidated Listing and Disclosure Rules, published on October 1, 2013, compiles all existing Philippines Stock Exchange (PSE) rules governing the registration of securities on the exchange as well as the continuing listing and disclosure requirements of listed companies. These rules are consistent with the PSE's status as a self-regulating body and with the relevant provisions of the Securities Regulation Code.¹⁶⁹

9.8.6 Executive Pay and Performance    Under the guidelines for listed companies published in 2016, boards should link the pay of key executives and board members to the long-term interests of the company. In order to establish a limited compensation management system, enterprises should develop policies that specify the relationship between remuneration and performance including specific financial and non-financial indicators to measure performance, and develop specific regulations for employees who have a significant impact on the overall risk profile of the company. In addition, directors are prohibited from being involved in discussions or deliberations on the terms of their own remuneration. If compensation is well-managed and aligned with the business and risk strategies, and objectives and values, companies can effectively prevent conflicts of interest, and attract and retain competent talent. Efficient compensation management can promote a risk culture in which risk-taking behavior is discouraged.¹⁷⁰

9.9.1 Development of Corporate Governance in Singapore    Corporate governance was officially recognized in Singapore with the enactment of the Company Act (CA) in 1967. In the same period, the Stock Exchange of Malaysia and Singapore were separated to form individual stock exchanges, Kuala Lumpur Stock Exchange for Malaysia and Singapore Stock Exchange for Singapore. In the late 1990s, the Monetary Authority of Singapore (MAS) decided to undertake a massive restructuring of the financial sector as they embarked on the journey to become one of the top financial centers. Unfortunately, the Asian Financial Crisis (AFC) occurred shortly afterwards, which took them a few steps backward in their restructuring plan. In between the review of Singapore's financial sector and the Financial Crisis, committees led by the private sector were inducted to continue the restructuring process. Their suggestions and recommendations resulted in the enactment of the first Code of Corporate Governance in Singapore (2001). The Singapore Institute of Directors (SID) was established to promote a high standard of corporate governance and ethical conduct of directors. SID has remained relevant even after the AFC by creating awareness through recognition through awards of companies which complied with corporate governance practices. SID published papers which were intended to guide boards of directors, committees and management in following corporate governance standards. Other tools were used to promote corporate governance including the ASEAN Corporate Governance Scorecard and the Singapore Governance and Transparency Index.

The development of corporate governance in Singapore has improved over the years. In 2017, the MAS announced the formation of the corporate governance Council to review the Code of Corporate Governance in the country. According to the Asian Corporate Governance Association and CLSA, Singapore and Hong Kong were among the top in corporate governance rankings in fulfilling the basic tenets of corporate governance rules and practices, enforcement, political and regulatory environment and accounting and auditing. Singapore also ranked top in the Asia-Pacific area according to the study organized by KPMG and ACCA which reviewed corporate governance requirements across countries. Regardless, Singapore continues to enhance its corporate governance mechanisms.¹⁷¹

9.9.2 Regulatory Framework

9.9.3 Board Structure and Ownership Structure    According to the 2014 Singapore Directorship Report, companies had on average six board members. The largest board had 20 directors and the smallest had three. In terms of board structure and composition, 34.1 percent of board seats were occupied by executive directors, 18.4 percent by non-executive directors and 47.5 percent by independent directors. Fifty-seven percent of companies were chaired by executive directors of which 30.8 percent were also chief executives while the remaining 26.2 percent served as executive chairs rather than company chief executives. Independent directors accounted for less than half of board seats. In 97 percent of companies, at least one-third of the board of directors were independent directors. In 54.5 percent of companies, more than half of the board of directors were independent directors.¹⁷⁴

While the average board size of six directors remained relatively stable, by 2016 there appeared to be a shift toward smaller boards. The size of the board is positively related to the size of the market value. Large companies tend to have larger boards. There is an increasing trend for boards to have more independent directors. This can be seen from the increase in the proportion of independent board seats since the 2014 report, with 49 percent of independent board seats and 51 percent of non-independent board seats, a fall from 53 percent, identified in the 2016 Singapore Directorship Report. A total of 62 percent of companies have independent directors making up at least half of the board, which is a significant increase from 55 percent in 2014.¹⁷⁵ As for Singapore's ownership structure, it is similar to most parts of the world (with the exception of the United States and the United Kingdom). But big companies are usually concentrated in their holdings and either family-owned or state-controlled.

9.9.4 Shareholder Rights    Shareholder rights and engagement in Singapore are regulated by a combination of statutory and non-statutory instruments under common law. The Companies Act (CA) and the Securities and Futures Act (SFA) make up the relevant core statutory framework, which is supplemented by non-statutory instruments such as the Listing Manual of the Singapore Stock Exchange (Listing Manual), the Singapore Code of Corporate Governance (Governance Code) and the Singapore Code on Takeovers and Mergers (Takeover Code).

There are a number of instruments used in the regulation of shareholder rights in Singapore, which include both statutory and non-statutory rules for shareholder engagement. The main points are as follows:¹⁷⁶

Summoning a general gathering of shareholders: If the shareholders comprise greater than 10 percent of the total number of shares issued by the company, they have the right to schedule a general meeting directly.

Shareholder transparency: Active shareholders of a listed company should be informed of the voting rights of the major shareholder or any shareholder, director, or CEO of a company with a share interest above 5 percent of total voting shares. This information must be publicly disclosed as stated under the Capital Control Act and the Standard Financial Agreement.

Dismissal of a member of the board: A director of a listed company may be removed from office at any time by ordinary resolution of the shareholders, even if something to the contrary is stated in the articles of association or any agreement between the company and the director.

Derivative action: In order to ensure accountability, the Anti-Corruption Act provides a statutory derivative action that enables shareholders to bring proceedings on behalf of the company against the misdeeds of a director/third party for the director's conduct, which requires court leave depending on the company's right to claim.

9.9.5 Disclosure and Transparency    According to the Singapore Academy of Corporate Management, the corporate governance framework ensures that all important issues that involve the company are disclosed correctly and in a timely fashion including financial and non-financial reports on the company's position, performance, ownership and governance.¹⁷⁷ This led to the inauguration of the Corporate Disclosure and Governance Committee (CCDG) in August 2002, which is supervised by the Singapore Stock Exchange. The Committee's responsibilities include the formulation of financial reporting standards for companies, strengthening compliance with reporting standards and disclosure framework reporting standards, and updating them in a timely manner to ensure that they conform to international best practices. The Corporate Disclosure and Governance Board tracks activities in business activities and corporate governance and responds to the demands of Singapore's business and investment community.¹⁷⁸

In recent years, the SGX has been focusing on the corporate governance disclosure of listed companies on the main board and has commissioned relevant institutions to investigate. In 2016, KPMG conducted an independent review of 545 companies on the disclosure of corporate governance guidelines. The study examined the information disclosed in the companies' annual reports for the financial years 2014 and 2015. The results reported that disclosure under the Corporate Governance Code by the main board listed companies was good, with room for improvement. In the study, the highest score was 90 percent and the lowest 28 percent. The study found that the average score was about 60 percent.¹⁷⁹

9.9.6 Executive Pay and Performance    Principle 7 of the Code of Corporate Governance requires a formal and transparent process to develop policies on executive remuneration and to determine the remuneration program of individual directors. No director shall participate in the negotiation of their own remuneration. To that end, Singaporean companies are expected to establish a remuneration committee whose main terms of reference are to review and determine remuneration packages for individual directors and key administrative staff in accordance with agreed and established criteria. The remuneration committee shall also review the specific remuneration of each manager and make recommendations to the board. It shall cover all aspects of remuneration including but not limited to directors' fees, salaries, allowances, bonuses, choices, share-based awards and other awards and benefits in kind.¹⁸⁰

9.10.1 Development of Corporate Governance in Taiwan    Taiwan was not left out during the Asian Financial Crisis as there were still cases of corporate fraud and bad debts years after the crisis of 1997. Subsequent to the crisis, the Organization for Economic Co-operation and Development (OECD) Council of Ministers reiterated the importance of improving corporate governance in both privately owned and state-owned corporations. Following the OECD's initiative, Taiwan intensified its awareness of the corporate governance standards by implementing the system of independent directors, the audit committee system and codes of corporate governance practices. It went further by amending the relevant laws (Company Law and Securities and Exchange Act) in 2006, which supports its quest to maintain high corporate governance practices in the jurisdiction.

9.10.2 Regulatory Framework    All companies incorporated in Taiwan are subject to the jurisdiction of the Company Act. As the legal basis of corporate governance, the Company Act supervises the operation of the shareholders' general meeting, the board of directors and supervisors. To comply with international trends and standards, the law issued rules on restricted stock, split voting rights and electronic voting to create an attractive environment for international investors. In addition, the Act requires a company's board of directors to adopt a cumulative voting procedure in elections that aims at fulfilling all corporate governance responsibilities.¹⁸¹

Listed companies in Taiwan are also bound by Securities and Exchange Act (SEA) and its subsidiary regulations as well as the rules issued by the Taiwan Stock Exchange (TWSE) and the Taipei Stock Exchange (TPEx). These rules establish and promote specific requirements for corporate disclosure to ensure transparency of listed companies. SEA was promulgated on April 30, 1968 and last amended on December 7, 2016 providing a comprehensive legal framework for securities regulation in Taiwan.¹⁸² On January 11, 2006, the SEA amendment was released. The amendment introduced the system of independent directors and audit committees as well as strengthening and improving the functions, structure and operation of the company's board of directors.

The TWSE and TPEx exchanges have made efforts to improve compliance with corporate governance standards by stipulating the requirements for listing firms on both exchanges. They went further by developing principles to guide domestic firms, with the issuing of the Governance Best Practice Principles, the Code of Practice for Corporate Social Responsibility and the Code of Practice for Integrity Management to establish a general understanding of building a corporate governance culture and enhancement of social responsibility.¹⁸³

9.10.3 Ownership and Control    Small and medium-sized enterprises (SMEs) are the most important form of enterprise in Taiwan, accounting for more than 90 percent of the total number of enterprises. The board members of SMEs tend to be family members, which means that external shareholders comprise only a very small number of non-family members or business partners. Important decisions in the company are actually made by “family committees.” Even as the company grows and goes public, family control remains a major feature of large companies. In most cases, the shares of listed companies are controlled by the family. This form of family business has both advantages and disadvantages. The advantage is that a management team of family members will have strong leadership and cohesion. The drawback is that companies controlled by a family often abuse their management rights for self-interested benefits, thereby harming the interests of minority shareholders.

Since the 1980s, with the transformation of traditional labor-intensive industry to high-technology industry, the trend for separation of ownership and control has increased in Taiwan. An explanation for this phenomenon is that in order to remain competitive, high-technology companies are expected to share ownership with scientists, engineers and managers.¹⁸⁴

9.10.4 Board Structure    According to the Company Act, a limited company must establish a board of directors to supervise its business activities. The one-tier board structure is widely used in Taiwan. The board of directors shall consist of not less than three directors. According to Article 26-3, the board of directors of a listed company should be composed of at least five directors.

In general, the chair represents the company while the other directors represent the company only if authorized by the board of directors. The shareholders' meeting, the board meeting and the managing directors' meeting are presided over by the chair of the board of directors. The board was given a wide range of powers through a series of meetings. Except for matters which shall be carried out in accordance with the resolution of shareholders according to the laws or articles of association, the specific business plan of the company shall be decided by resolution of and adopted by the board of directors. The board may also establish internal rules for the enterprise to regulate procedures for specific types of transactions such as the granting of loans and the provision of endorsements or guarantees.¹⁸⁵

9.10.5 Shareholder Rights    Generally, the main shareholder rights are as follows:¹⁸⁶

9.10.6 Disclosure and Transparency    As information disclosure is an important part of corporate governance, strengthening disclosure also promotes the improvement of national policies and enables enterprises to effectively improve the transparency and accessibility of relevant information. The goal of information disclosure is to provide relevant information, improve the value of enterprises, reduce financing costs and protect the interests of investors. This will promote healthy development of the market while achieving the goal to “open information, expand participation.” Following this trend in July 2002 the Executive Yuan established the Financial Reform Committee. In response to the emphasis on corporate governance and transparency of corporate information in other countries and regions of the world, the Financial Reform Committee has made the promulgation of information disclosure and evaluation systems a priority. In 2003, the Taiwan Stock Exchange Corporation and the Taipei Exchange commissioned the Securities and Futures Institute to carry out the development of an information disclosure system and carried out the first annual disclosure and evaluation review of enterprises.¹⁸⁷ To promote good disclosure, TWSE and TPEx announced the Public Company Material Information Disclosure Process in 2008 to help a company's internal staff better understand the relevant laws and regulations.¹⁸⁸ In 2013, the Supervisory Commission listed “Disclosure of Material Corporate Governance Information” as one of the five goals of 2013 Corporate Governance Roadmap. It can be predicted that the disclosure of non-financial information will become more common in the future.

9.10.7 Executive Pay and Performance    According to the Company Act, if the company's articles of association do not provide for the remuneration of directors, directors' remuneration shall be determined by the shareholders' general meeting. The SEA requires all listed companies to set up a remuneration committee with at least three members and to regularly review projects such as corporate performance and directors' compensation. For details on the membership of and the exercise of the functions and powers of the committee, reference is made to the Regulations Governing the Appointment and Exercise of Powers issued by the remuneration committee of a limited company listed on a stock exchange.¹⁸⁹

9.11.1 Legal Framework    Thailand is a civil law country with common law influence on its corporate governance legal framework. In Thailand, listed and public companies are governed by the 1992 Public Limited Companies Act (PLCA). Other companies are governed by the Civil and Commercial Code. The Department of Business Development (DBD) in the Ministry of Commerce is responsible for company registration and implementation of the Act. The 1992 Securities and Exchange Act (SEA) regulates the capital market and authorizes the SEC in monitoring listed companies. The SEA was amended in 2008, including clearer responsibilities for board members, improvement of shareholder rights, enhancement of the whistle-blowing system and provisions to increase the independence and professionalism of the SEC. ¹⁹¹

9.11.2 Thai Institute of Directors (Thai IoD)    Established in 1999 as a not-for-profit membership organization, the Thai Institute of Directors Association (Thai IoD) is responsible for the enhancement of directorship and corporate governance to align with global standards.¹⁹⁷ Since 2000, the Thai IoD has released its Corporate Governance Report of Thai Listed Companies (CGR), which serves as a corporate governance model for Indonesia, Malaysia and the Philippines.¹⁹⁸

9.11.3 Primary Areas of Corporate Governance

9.12.1 Players in Promoting Corporate Governance

9.12.2 Primary Areas of Corporate Governance

9.12.3 Board Structure    The 1990 Company Law and the 1995 Law on SOEs introduced concepts related to the BOD, Supervisory Board and General Director in Vietnam. However, the laws are not widely adopted and implemented by companies in Vietnam. For example, board members who lack experience in corporate governance may not be aware of their responsibilities in the day-to-day company operations. Joint stock firms in Vietnam follow the LOE to elect members of the BOD and the Supervisory Board in GMS. The GMS or the BOD directly elects the chair of the BOD.²²⁵ In joint stock commercial banks, the appointment and dismissal of board members follow the regulations of SBV (the central bank).²²⁶ Insurance companies in Vietnam follow the insurance regulations in that the board members are approved by the MoF.²²⁷

9.12.4 Transparency and Disclosure    SOEs play a dominant role in Vietnam's economy. SOEs are required to provide relevant information to state-owned agencies and disclose the approved information on the companies' official websites. The information shall be sent to the state-owned agencies and the Ministry of Planning and Investment (MPI). The state-owned agencies will publish the information on the official website and the MPI will provide information on the government website www.business.gov.vn. There are several laws and regulations governing SOE transparency and disclosure including the Law for State Capital Invested Management (2014), Decree 99 (2012), PM's Decision 929 (2012), Decree 81 (2015) and Decree 87 (2015).²²⁸

9.12.5 Executive Compensation    The 2005 LOE requires that compensation of board members must be disclosed in their annual financial statements as separate items.²²⁹ The LOE also requires that the remuneration, wage and bonus of board members and executives be disclosed with their working hours and the company's business performance. The compensation of the board members is approved at the shareholders' meeting while the executive compensation is decided and approved by the board. The chief executive officer has the right to decide the remuneration of the managers and officers.²³⁰