Despite years of pressure
on companies to do better, corporate transparency
is an underdeveloped art in Asia.

To understand how far the region’s companies
still have to go in improving financial
reporting, consider HSBC Holdings. HSBC is
a top performer in the ACCA/CFO Asia three-country
“Regional Corporate Transparency
Index (CTI),” which we introduce this month.
The company provides copious detail — its full
annual report weighed in at 3 pounds last year.
It boasts laudable disclosure of its corporate
social responsibility (CSR) activities. And the
company — along with Hong Kong’s MTR —
distinguishes itself in investor relations.

But the bank’s score could be higher still.
Hong Kong’s regulators allow companies to
release financials every six months, a leisurely
pace compared with Singapore and Malaysia,
which demand quarterly releases. Hong Kong
even allows companies a luxurious 120 days
after a six-month close to get their information
in front of investors. HSBC does more than Hong
Kong requires, reporting financials in 65 days. But
that’s not quite up to the regional best practice
established by Singapore and Malaysia. Regulators
in those countries hold companies to 60 days or
under, and many companies listed in Singapore and
Kuala Lumpur often report more swiftly.

HSBC’s case is emblematic. The ACCA/CFO Asia CTI offers a
glass half-full — suggesting better
disclosure throughout the region. It also offers
one half-empty, in which even top performers
trail their peers in other regions.

“The current evidence suggests that Asian financial
reporting is lagging behind U.S. and European
standards,” says Penelope Phoon-Cohen, country
head of ACCA Singapore.
Jamie Allen, the head of the Asian
Corporate Governance Association
(ACGA), based in Hong Kong, adds,
“Other markets are able to provide information
on a timelier basis. Why is it so
difficult in Hong Kong?”

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How They Made the Cut

The ranking was created for CFO Asia
by the Singapore arm of the Association
of Chartered Certified Accountants
(ACCA), the global accounting body. Its
aim is to examine the transparency of the
top 25 companies by market capitalization
(as of 31 March 2008) that are constituents
of the main indices in Singapore,
Hong Kong, and Malaysia (The Straits
Times Index, The Hang Seng Index, and
the FTSE Bursa Large 30 Index). This
regional version is an expansion of a
Singapore-only version which has run in
Singapore’s Straits Times since 2004. For
a description of methodology see “Understanding the Transparency Scorecard” at the end of this article.

What makes a company excel in this
ranking? Phoon-Cohen says that the best
performers go beyond mere compliance
to provide information that is understandable
and genuinely useful to investors.
The best reports, she says, “usually
reflect a high degree of empathy by the
preparers for the needs of their users.”
This includes information about future
plans, assessments of risk, and good
graphics. Timely delivery and discussion
of financials with investors, creditors,
and analysts are essential.

“We take communications with
investors very seriously as we’re the custodian
of their money,” says CEO Richard
Elman of Singapore-listed Noble Group,
which placed eighth in the ranking. He
adds, “The simple idea is that we treat
shareholders as we like to be treated.”

Some Asian companies grasp this
remit. Many don’t. Phoon-Cohen says,
“Asian financial reporting tends to be
extremely compliance-based and lacks
the commitment to provide information
beyond what is required by legislation
but useful to investors.” Or, as Robert
Jelly, director of education for CIMA,
another accounting body that is urging
better disclosure, puts it, many Asian
companies act as though they prepare
reports for the regulator. “But the regulator
doesn’t own the business,” he says.

Tepid investor activism across the
region is partly to blame, along with a
lack of uniform reporting standards.
Still, matters are improving: companies
disclose more information in the region
than they did five years ago. The adoption
of international financial reporting
standards in China — and soon in India —
will encourage greater region-wide uniformity
in financial reporting, allowing
investors a better means to compare
information released by companies listed
in different locations. Further, competition
for global equity capital in growth-hungry
Asia is driving reporting.

The improvement is particularly
notable among Singaporean and Malaysian
companies. Twelve of the top-ranked
25 hail from Singapore, compared
to 10 from Hong Kong and two
from Malaysia. But break down the performance
in the “context” category, and
the Singaporeans and Malaysians run
a clear lead. No Hong Kong company
found its way into the top-ten performers
for “context” — which grades companies
for the ease of access to information,
speed of delivery, and the number of
ways it can be obtained. Singapore-listed
Keppel, a marine, property, and infrastructure
company; Starhub, a mobile
services company; and Malaysia’s Digi.
com, another mobile provider; all delivered
essential financial information well
under the required 60 days.

Graham Owens, senior project manager
at Singapore-based CSR Asia, a
group that monitors companies’ corporate
social responsibility activities in
the region, notes the importance of the
“context” scores. Companies that offer
a lot of choice in “the way they deliver,”
according to Owens, “show how seriously
they take their engagement with investors,
analysts, and media.” The relatively
poor showing of Hong Kong companies,
suggests Owens, implies a lack of pressure
by investors on companies tightly
held by Hong Kong’s famous tycoons
and their families. “[The investors] don’t
seem bothered,” says Owens, “they have
confidence that he — the tycoon — will
make me money.” Hutchison Whampoa
and Cheung Kong Holdings, owned by
Hong Kong “superman” Li Ka Shing,
received low marks for “context.” Hong
Kong-listed Chinese giants CNOOC, the
oil company, and ICBC, the bank, had
the lowest “context” scores of all.

The tycoon factor may be one reason
why institutional investors rely almost
exclusively on their own footwork. Peter
Taylor, head of corporate governance at
Aberdeen Asset Management in Singapore,
says that financial disclosure only
goes so far. “Willingness of companies to
meet with investors is important to us,”
he says, adding that “without meeting
management, we’re not willing to invest.”
He prefers to meet with the CFO or CEO
and not, “the guy whose job is to charm
you. You’re looking for more than mere
answers to your questions. You want to
get a sense of who they are.”

While global funds often have heads
of corporate governance, Taylor is the
first to be lodged in Asia. Aberdeen
has been an activist investor. In 2007,
the fund led a minority revolt during a
bid for Malaysian Oxygen, a company
that sells industrial and medical gases.
Aberdeen owned a 10 percent stake
and fought an offer by Linde, a German
company specializing in hydrogen technologies.
Linde had taken over Malaysian
Oxygen’s one-time parent Air
Liquide of France and wanted to buy
out existing shareholders. Some investors
were willing, but Aberdeen argued
that the price was too low and held out
until Linde upped its offer by 17 percent.
Actions like this, in Taylor’s view,
increase pressure on majority owners
to be more forthcoming to minorities.

Omission and secrecy mar disclosure
across the region, says Taylor. Both he
and ACGA’s Allen complain that companies
sometimes make no mention of
material events affecting share prices in
their annual reports. Singapore’s Sembcorp
Marine, 29th in the ranking, stands
out as an exception. Amid a controversy
stemming from allegedly unauthorized
foreign exchange transactions by Sembcorp
Marine’s former finance chief, Wee
Sing Guan, Sembcorp opted for disclosure
in the letter to shareholders in its
recent annual report.

The transactions involved Sembcorp
Marine’s Jurong Shipyards unit and
its transactions with 11 banks. Jurong
had reached a settlement with nine of
the banks, writing off S$308 million
(US$225 million) in the case. But the
company is still seeking to recover S$290
million (US$212 million) from Société
Générale — which it has expensed on its
profit and loss statement — and disputing
another US$51 million claimed by
BNP Paribas, which it has accounted
for as a contingent liability. Sembcorp
Marine’s clarity about the case and the
disputed amounts can only be reassuring
to shareholders.

Sembcorp’s example is not universally
followed, particularly by the
region’s banks. Taylor argues that
local banks have done an abysmal job
of releasing information in the special
circumstances that emerged in the subprime
meltdown. “Investors were left
guessing,” he says, “as to which companies were most affected.”

Allen points to parsimonious explanation
of the resignation of independent
director Lee Suet Fern from Singapore-
listed China Aviation Oil (CAO)
in April. Lee was brought in as part of
the restructuring to save CAO after its
2005 near-collapse following a trading
scandal. Lee was a key figure on a five-member
governance committee, but
left citing concerns over the “company’s
approach to information flow and the
management of decision-making, review
and oversight,” according to her resignation
letter. The company responded
that it would review that approach. It
also implied that the issue resulted from
a language problem when it announced
the appointment of Lee’s successor,
Wang Kai Yuen. Wang was described
as a man who is “effectively bilingual in
English and Chinese and understands
the nature and style of business being
conducted in China.” Lee countered
that there were no language issues.

Across the region, companies need
to give shareholders more detail about
decisions made at annual meetings,
says Taylor. “Sorry to say, this applies to
most of the biggest companies,” he says.
“Maybe they don’t feel they need to — once a decision is voted on and decided,
they may see the issue as safely passed.”
But as an investor, Taylor adds, he wants
to know if 20 percent of shareholders
have voted against a director or a share
issuance plan. Allen would like to see
more detailed reports on decisions made
at board meetings, and more transparency
about attendance of those meetings.
Another bugaboo: a dearth of disclosure
on related-party transactions.

Of course, heeding such advice
means disclosing a great deal of information.
HSBC was criticized by wags
in the British press for the weight of
its report, loaded with dry numbers
and commentary. But for Allen, that’s
hardly a crime.

“The more I dig into company disclosure,”
he says, “the more I appreciate
being able to get to the facts.”

Understanding the Transparency Scorecard

The CTI “Scorecard” is an itemized list which shows the main
attributes that could be used to assess the quality of a company’s
disclosure.

Companies that serve up relevant and comparable
information — and do this regularly and frequently —
gain higher scores for disclosure than those that simply comply with legal
requirements. The scoring is based on annual results announcements
and associated fact-sheets, press releases made available
to the public via the stock exchange website, or the corporate
website. Corporate websites were used exclusively for
the environmental, social, and governance, and investor relations
information (including third-party providers if relevant).
The CTI assesses both financial and non-financial indicators,
including ease of access to information.

Because delivery of information is as essential as
quality of information, the authors split the CTI scorecard
into “Content” and “Context” sections. The content section
judges the quality and quantity of the financial information
provided. The context section ranks the effectiveness of how
this information is communicated to the relevant stakeholders.
The scorecard provides 60 points for content and 40
points for context.

The content section uses the mandatory disclosure
requirements taken from the relevant stock exchange listing
requirements and the International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards
Board (IASB). It also includes, up to a maximum of 10 points,
an assessment of the disclosure in the less traditional area of
environmental, social, and governance issues, or ESG.

In the context section, availability of information
matched by speed-to-market is crucial for a high score. The
context here includes press conferences announcing results
and the use of technology. The researchers looked at webcasts,
podcasts, and interactive Q&As, using a sliding scale of
up to a maximum of 10 points here, as well. Additionally, they
looked at the investor relations component of the corporate
website for criteria such as ease of access, current and historical
information, and use of technology. Again, this granted a
maximum of 10 points. — Penelope Phoon-Cohen

ACCA Regional CTI Scorecard 2008
Annual reports for the year ending December 31, 2007.

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