Asia's stock market regulators have to do more to improve corporate governance by making it easier for shareholders to nominate or remove directors, requiring increased information about compensation and by allowing class-action lawsuits, according to a report by CLSA Ltd.
"The corporate governance culture in most countries is improving but there is still a lot of room for further improvement," said Jamie Allen, secretary general of the Asian Corporate Governance Association, who contributed to the report. "Weak rules make it very difficult for investors to participate in corporate governance" in Asia.
Corporate Governance Watch 2004 is published by CLSA Ltd in conjunction with the Hong Kong-based Asian Corporate Governance Association, or ACGA, and was released today. It is based on surveys of 450 companies in 10 markets that CLSA covers in the region, excluding Japan.
Singapore, Hong Kong and India have the best corporate governance rankings, while Indonesia, China, the Philippines and Thailand have the worst, based on measures such as rules and regulations, and enforcement of those rules.
"Regulators really can't do very much," said Mark Mobius, who manages US$13 billion in emerging-market assets at Singapore-based Templeton Asset Management Ltd. "They're not very good at enforcing. Our conclusion is that it's the shareholders, the institutional investors, who will have an impact at the end of the day by forcing the companies to do something about it."
Mobius said in South Korea class action lawsuits are becoming "an effective weapon." South Korea is one of three countries in Asia outside Japan where investors can file class action lawsuits.
The Corporate Governance Watch 2004 report found there was some correlation between corporate governance and stock performance over longer timeframes.
"When the markets declined, as they did from the late 1990s to the middle of last year, the worse markets for corporate governance were the biggest losers, and the better corporate governance markets either declined by less or actually managed to eke out gains," the report said.
That trend was reversed over a shorter timeframe.
Among Asia's biggest stocks, the report said the companies that rank best in terms of corporate governance are Infosys Technologies Ltd, India's second-biggest software exporter; CLP Holdings Ltd, Hong Kong's biggest power company; Esprit Holdings Ltd, the Hong Kong-based clothing chain; HSBC Holdings Plc, and Wipro Ltd, India's third-biggest software exporter.
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