Asian corporate governance standards lagging behind Europe, says PwC
Asian corporate governance standards continue to lag behind Europe although a growing number of institutional investors in the region are pushing the issue, a senior executive at PricewaterhouseCoopers in Hong Kong has said.
“Standards in corporate governance in Asia are quite varied. At some of the biggest managers which have an international and institutional client base, it is on par with that of Europe. However, Asia still has a lot of smaller managers which run money for family and friends, which means corporate governance and independence of directors is less of an issue for those investors,” said Carlyon Knight-Evans, partner in the assurance and asset management industry group at PwC.
A survey in 2011 by Carne Group revealed investors gave governance standards at Asia-based managers a score of just 5/10 compared with 7/10 in Europe. Furthermore, investors told Carne that Asia was the toughest region from which to obtain details on fund directors, their backgrounds and their relationships to the investment manager at the fund.
This could be attributable to the lack of interest, particularly among Chinese investors, in hedge fund corporate governance. “A lot of Chinese investors will accept the managers’ word and trust them and governance is something that is not a huge issue for them. However, we are seeing sophisticated investors in the region starting to push for better governance standards,” he added.
A Carne Group client memo recently said that the AIJ Investment Advisors scandal in Japan had prompted Japanese institutional investors to beef up their governance criteria. AIJ shocked the market when it was revealed that it had covered up losses of more than $1 billion . “The AIJ scandal has led to Japanese investors to rethink some of their procedures and standards,” commented Knight-Evans.
Inaction by hedge fund managers and offshore director services firms could prompt some regulators to take action and impose restrictive caps on directorships. Nevertheless, regulators in Asia do not appear to be expressing interest in imposing such measures yet. “I have not heard of Asian regulators planning to impose any form of regulation,” said Knight-Evans.
Corporate governance standards, particularly in Europe, have been a major issue since 2008 and the 2011 Weavering Capital judgement. Many institutional investors, particularly public pension funds such as the Universities Superannuation Scheme (USS) have been highly critical of the number of directorships certain individuals hold, particularly in the Cayman Islands and other offshore jurisdictions. Others have criticised the lack of investment management experience among directors too.
According to the Carne survey, 91% of investors said poor governance would cause them to avoid investing while 76% claimed they had decided against allocating into at least one fund because of governance concerns.