Transnational Corporate Governance Codes: Lessons from Regulating Related Party Transactions in Hong Kong and Singapore

Abstract

Many jurisdictions around the world, including Asia, have corporate governance codes largely based on the transnational code drafted by the Organisation for Economic Cooperation and Development (OECD). The core ideas underpinning the OECD’s principles of corporate governance are board independence and proper management of conflicts of interest. These ideas, drawn from the Anglo-American model of corporate governance, are designed to protect companies and their shareholders. However, the question remains as to whether a transnational corporate governance code is always appropriate and effective, particularly when the kinds of companies listed on the stock exchange significantly differ from the Anglo-American model. In this article, we examine Hong Kong and Singapore, two Asian financial centers with national corporate governance codes that are closely aligned with the OECD principles of corporate governance. The regulatory and institutional framework supplementing these principles has broadly followed the Anglo-American model. However, Hong Kong and Singapore have listed companies that differ from the Anglo-American model, particularly in two respects: the shareholdings in the two Asian jurisdictions are much more concentrated, and they have comparatively higher levels of foreign listings. Drawing from empirical data related to tunneling through related party transactions from 2002-2004 and 2009-2014, which has remained rampant among listed companies in the two jurisdictions, we argue that that a one-size-fits-all approach to the OECD principles may not be appropriate if we ignore local characteristics. Specifically, we examine the concentrated shareholding structures and the large number of foreign (notably Chinese) firms listed in Hong Kong and Singapore. Although this article does not fundamentally challenge the utility of the OECD principles of corporate governance, we suggest that national regulators should not unreservedly follow these principles without adapting to local circumstances and devising specific strategies to deal with local problems.