Despite consistently ranking in the top of 
Asian corporate governance for its strong transparency and its financial regulatory oversight, Hong Kong has lost some ground due to the lack of general best practice standards in investor engagement initiatives. To address the issue, the Hong Kong’s Securities and Futures Commission has recently published new stewardship guidelines for investors with the launch of its Principles for Responsible Ownership (“the Principles”) after a year of public consultation. (Glass Lewis’ Consultation Paper on the Principles may be viewed here).
Stewardship Codes around the Globe
The Principles resemble the UK Stewardship Code published by the UK Financial Reporting Council in July 2010 and the Japanese version finalized in February 2014 by the Financial Services Agency of Japan. Both aim to promote sustainable growth of corporate value and long term returns through engagement activities and constructive communication between listed companies and institutional investors. While there is still limited evidence to assess their effectiveness, the above-mentioned codes fundamentally serve as a joint consensus for responsible investing activities and constructive dialogue without restricting investors to a set of mandatory regulations.
Benefits and Concerns
Stewardship codes are considered instrumental in attracting investors by enhancing quality dialogue between investors and investees. As one of the most business friendly jurisdictions in the world to incorporate offshore companies, Hong Kong market will particularly benefit from the Principles of seven principles which include encouraging investors to (i) establish and report to their stakeholders their policies for discharging their ownership responsibilities; (i) monitor and engage with their investee companies; (iii) to act collectively with other investors when appropriate; and (iv) establish clear policies on their voting guidance, engagement activities and managing conflicts of interests. Overall, the Principles serve as an effective guide to a clearer understanding of corporate boards’ and shareholders’ long-term common interests.
However, given the closer ties between Hong Kong and mainland China and that a large number of Hong Kong listed companies are family-owned business enterprises, the Principles appears to be lenient on addressing the increasingly diverse concerns from Hong Kong market participants regarding its concentrated shareholding structure and inadequate disclosure on conflicts of interest. Irrespective of the success of comply-or-explain regimes in other countries that have already introduced similar stewardship codes, it is worth looking forward to how the Principles will assist Hong Kong governance in measuring up to international standards with respect to the handling of responsible investment.