Hong Kong listed companies have demonstrated marked improvements over the past two years in their corporate governance practices, according to a comprehensive study conducted by City University of Hong Kong (CityU) in conjunction with the Hong Kong Institute of Directors (HKIoD).

Compared to findings in the first study in 2004, a clear improvement of 16% was recorded last year in the "Corporate Governance Scorecard" project, a surveywhich assessed the quality of corporate governance practice in 174 locally-listed companies.

The research was sponsored by the Corporate Governance Development Foundation and executed by CityU's research team led by Professor (Chair) Stephen Cheung Yan-leung of CityU's Department of Economics and Finance.

The findings reveal significant improvements in the "rights of shareholders", "disclosure and transparency" and "board responsibilities". In addition, a positive correlation between market value and the quality of corporate governance was noted, data consistent with findings in 2004.

However, companies appear to be relatively weak in the "role of stakeholders on corporate governance", while the quality of corporate governance varies tremendously. The average score for all companies was 71.12, while the best performing company scored 92.14 and the worst 51.42.

Professor Cheung was upbeat about the findings. "I am glad to report that there are substantial improvements in corporate governance practices among Hong Kong companies," he said.

Mr Peter Wong Shiu-hoi, Chairman of HKIoD, said the pluses outweighed the minuses. "Four out of five areas evaluated have seen improved results, reflecting a

growing awareness among Hong Kong corporations of the importance of corporate governance. That said, we also identified areas of weakness and duly encourage ongoing diligence," he said.

The 174 companies surveyed represent the constituent stocks of the HSI (Hang Seng Index), HSHKCI (Hang Seng Hong Kong Composite Index), HSCCI (Hang Seng China-Affiliated Corporation Index), and HSCEI (Hang Seng China Enterprise Index). The evaluation criteria are based on international standards and the Hong Kong Exchanges and Clearing Limited's Recommended Best Practice for Corporate Directors. The five areas evaluated are:

• Rights of shareholders;
• Equitable treatment of (minority) shareholders;
• Role of stakeholders in corporate governance;
• Disclosure and transparency; and
• Board responsibilities.

The aim of the project is to assist Hong Kong companies, policy makers and the public to identify ways to improve corporate governance practices, added Professor Cheung, who was Chairman of the Core Group on Corporate Governance of the Pacific Economic Cooperation Council (PECC) from 1999 to 2001. Under his leadership, the Core Group drafted a report entitled Guidelines for Good Corporate Governance Practice, a publication endorsed by APEC ministers in 2001.