Stewardship in the Hong Kong International Financial Centre: Adding ‘Responsible Owners’ to an Entrepreneurial Market

Abstract

Hong Kong’s “Principles of Responsible Ownership,” issued by its Securities and Futures Commission, offer a telling example of what it means to be an international financial centre in 21st century Asia. The point of this stewardship code is to nudge institutional investors toward responsible voice and away from careless action and exit. This meets a problem seen as urgent 90 years ago by Berle and Means, and also in the 2010s following the global financial crisis and the rise of aggressive activist funds and of giant index funds. Hong Kong listed companies, however, tend to be controlled by ‘entrepreneurial’ owners – families or very large holding companies, not financial investors. Such entrepreneurial owners are active, informed and have a long-term orientation, which are three adjectives one would associate with responsible ownership. The non-binding duties expressed in a stewardship code will probably not affect an otherwise self-interested drive to manage listed companies for long-term gain. This does this mean Hong Kong was wrong to adopt a stewardship code. The business of an international financial centre is to attract capital and listings from the entire world. This business model demands use of globally recognized standards, even if poorly matched with local needs. Although such a code is unnecessary for the real Hong Kong market, it is crucial for Hong Kong to signal membership in the dominant network of Anglo-American law. The stewardship code’s effect is thus very real despite the fact that it lacks all substance in controlling shareholder behaviour.