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     The ideal board structure appears to be one composed of both inside and outside directors. Inside directors will bring their expertise and detailed knowledge of the firm to the board meetings and outside directors will provide the important monitoring function.57 However, the independence and the qualifications of the outside directors are of very significant.

     Thus, first, in order to ensure the independence of the directors, Hong Kong must mandate the listed companies not to have members of the same family making up more than half of the members of the boards.58 In this regard, Thailand can learn this requirement from Hong Kong.

     Lastly, according to a study from Gul and Leung, quality of independent non-executive directors is more important in ensuring higher corporate disclosures than the number of non-executive directors.59 As a result, both Hong Kong and Thailand should include the qualifications of the independent non-executive directors in their Codes of Best Practices in order to ensure the objectivity of the independent non-executive directors.

     C. Audit Committe

     In many countries including the US, UK, Canada, Australia, and Singapore, audit committees are a feature of good corporate governance for listed companies.60 It is mandatory in US, Canada and Singapore but is voluntary in UK and Australia.61

     Hong Kong

      Hong Kong has followed this international standard since May 1998.62 Similar to the UK and Australian approach, under the revised Guidelines in the Hong Kong Code of Best Practices, audit committee requirements in Hong Kong under the main board's Listing Rules are introduced as best practices rather than as mandatory rules.63 The Code also expects all listed companies in the main board to report in their interim and annual reports their compliance with the setting up of audit committees or their reasons for any non-compliance therewith for accounting periods commencing or after 1st January 1999.64 On the GEM board, however, audit committees are mandated because companies listed there are typically without a track record of profitability due to their emerging nature.65

     In addition, the Code of Best Practices recommend that members of an audit committee should be appointed from among the non-executive directors and a majority of them should be independent.66


     Unlike Hong Kong approach, an audit committee in Thailand is compulsory. In January 1998, the SET notified listed companies that they would have to form audit committees no later than December 1999, while newly listed companies would require them from the start.67 Such audit committees should comprise at least three directors, all of whom should be independent and at least one must have expertise in accounting or finance.68


     One way of improving corporate governance is by using audit committees. Their function is to assist the management in providing an independent review of the effectiveness of the financial reporting process and internal control company. As a result, audit committees can promote transparency and acceptability.

     The Hong Kong requirement of the voluntary audit committees for all listed companies is a small step in the right direction.69 However, in order to their full benefits, a further step toward compulsory audit committees is necessary. In this regard, Hong Kong can learn from Thailand by requiring audit committees as mandatory rules. Besides, in order to make such audit committees well functioning, at least one of its members should have expertise in accounting or finance.

     D. Shareholder Remedies

     Hong Kong

     In Hong Kong, even major institutional investors are often minority shareholders with very little to say.70 However, even with some limitations, interests of the minority shareholders are protected in a number of ways.

     (1) Negative Control

     Fundamental matters i.e., the alteration of articles of association, reduction of capital, appointment and removal of the company's auditors etc., requires special resolution (which requires 75% of the votes) decided by shareholders in the general meeting.71 This gives the minority a certain degree of negative control if it can command 25% of votes at the general meeting. However, other matters concerning the day-to-day management are merely left to the board of directors.72

     (2) Securities Laws and Regulations

     Matters important to every investor are regulated by securities laws and regulations such as the Listing Rules or Takeovers Codes. However, the present regulations have some limitations and therefore are not satisfactory.73 For example, the stock exchange can suspend or withdraw a company's listing in a consequences of breaching the Listing Rules, but it is unlikely to be used because any suspension or withdrawal is also likely to harm the minority shareholders interests the Listing Rules seek to protect.74 Therefore, the more practical and effective actions are to issue a private reprimand, a public statement of criticism or a public censure and to report the misconduct to the Securities and Futures Commission or other regulatory authorities.75 Another limitation is that, as the HKSE is now wholly owned by the new Hong Kong Exchanges and Clearing, which is also listed on the stock exchange's main board. This creates a conflict of interest in that the regulator is regulating itself.76

     (3) Statutory and Common Law

     Statutory and common law give rights to shareholders to bring actions against the wrongdoers. However, bringing legal action is not attractive to the shareholders, even an institutional shareholder since it is costly and lengthy.77

     (3.1) Derivative Action

     Where the controlling shareholders who are the directors are in breach of their duties as directors, it is only the companies can bring legal proceedings against the wrongdoers.78 However, the controlling shareholders are unlikely to sue themselves for wrongdoing. In this regard, the minority shareholders may bring a derivative action on behalf of the company but the related law is rigid, old fashioned, unclear and the procedure is lengthy and costly.79

     As a result, it would be desirable to replace the old fashioned rule with a statutory derivative. Thus, the Standing Committee, after having considered the defects in the statutory derivative action adopted in Canada, New Zealand and England, believe that there should be a statutory derivative action in the New Ordinance and it should be made simple and accessible to minority shareholders.80

     (3.2) Unfair Prejudice

     Under Hong Kong Companies Ordinances, section 168A, if the affairs of the company are being, or have been, conducted in a manner unfairly prejudicial to the interests of the members generally or individually, a shareholder can petition the court for remedies. In determining whether there has been unfair prejudice, the court considers not only the shareholder's legal right but also his interests or legitimate expectations.

     Even though, however, the shareholder petitions under section 168A are more useful than common law derivative action, its proceedings can also be costly and lengthy. At present, the court will not make any order until the full case is heard.81 The extremely wide wording in section 168A allows the parties to allege unfair prejudicial conduct going back over many years.82 As a result, unfair prejudice cases can last weeks rather than days and cost enormously.

     (3.3) The Just and Equitable Winding up

     The just and equitable winding up provision is under section 177(1)(f) of the Hong Kong Companies Ordinance. It provides that a shareholder may apply to the court to wind up the company on the ground that it is just and equitable to do so. This remedy often applied to the case where one member is removed from management and he or she cannot take out his stake and go elsewhere.83 However, this remedy is mainly for quasi-partnership companies.84 In public companies, there is a bar in that there is a market at which the shareholders can sell, at a reasonable price, without the assistance of the court.85

Part 4


(57) Tricker, Robert., (1994)., note 40

(58)  Hong Kong Society of Accountants, Report of the Working Group on Corporate Governance (December 1995) in CGSR.7/1000(ACa), note 45

(59) Gul, F.A. and S. Leung, 2000. "CEO Dominance and Voluntary Corporate Disclosure Strategies in Hong Kong Annual Reports", Working Paper, City University of Hong Kong

(60) Canham, Janine., and Chis Soutorn., 'Protecting shareholders of Hong Kong companies', in Building Value in Asia, (Asia Law & Practice: 2000) at 29

(61) Corporate Governance, Class materials in Corporate Governance and Shareholder Remedies, CGSR.9/1000(ACa), Faculty of Law, University of Hong Kong, 10 October 2000, at 7 [hereinafter CGSR.9/1000(ACa)]

(62) Asian Corporate Governance Association, note 27, at 8

(63) Ibid.

(64) Ibid.

(65) Ibid.

(66) Code of Best Practice, Appendix 14, Corporate Governance, in CGSR.7/1000(ACa), note 45

(67) Asian Corporate Governance Association, note 27, at 39

(68) Ibid.

(69) Goo, Say., (2000). 'Minority shareholders in Hong Kong: a legal conundrum', in Building Value in Asia, Asia Law & Practice, at 77

(70) Ibid.

(71) The Hong Kong Companies Ordinance, Section 116.

(72) Goo, Say., 'Minority shareholders in Hong Kong: a legal conundrum', note 69, at 77
     In some special cases, the minority shareholders could be successful to use their shareholding to exercise negative control through voting. In a case of Vickers Ballas, Ong Beng Seng and his family, one of its minority shareholders who owns about 20% of Vickers Ballas was opposed to the merger plan and thereby the voting was less than 75% approval required.
     In other cases, the challenges of the minority shareholders are likely to be successful. For example, in a case of Jadine empire, a US fund manager Brandes Investment Partners, which holds 8% of Jardin Matheson Holdings and 2% of Jadine Strategic Holdings, proposed six resolutions including a proposal to abolish the cross-shareholding structure between the two companies. Even though the proposal was supported from other minority shareholders, it was voting down by Keswick family, the controlling family of the Jadine Empire.

(73) Goo, Say., 'Minority shareholders in Hong Kong: a legal conundrum', note 69, at 77

(74) Ibid., at 80

(75) Ibid., at 80

(76) Ibid., at 82

(77) Ibid., at 77

(78) Foss -v- Harbottle (1843) 2 Hare 461

(79) Goo, Say., (1998). 'Minority shareholder protection in Hong Kong's owner-managed companies' Company Secretary, May 1998, Volume 8 No.5, at 16

(80) Company Law Reform Standing Committee Report 2000, (SC Report) Chapters 7, 8 and 9 in Corporate Governance, Class materials in Corporate Governance and Shareholder Remedies, CGSR.10/1100(SG), Faculty of Law, University of Hong Kong, 7 November 2000, at 84 [hereinafter CGSR.10/1100(SG)]

(81) Goo, Say., (1998). 'Minority shareholder protection in Hong Kong's owner-managed companies', note 79, at 17

(82) Ibid.

(83) CGSR.10/1100(SG), note 80, at 67

(84) Ibid.

(85) Ibid.