THE HONG KONG INSTITUTE OF CHARTERED SECRETARIES THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS

Size: px

Start display at page:

Download "THE HONG KONG INSTITUTE OF CHARTERED SECRETARIES THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS"

Tamsyn Mason
5 years ago
Views:

THE HONG KONG INSTITUTE OF CHARTERED SECRETARIES THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS International Qualifying Scheme Examination CORPORATE GOVERNANCE PILOT PAPER Time allowed 3

reading time to read through the question paper before the commencement of the examination between 2:15pm- 2:30pm.

1 THE HONG KONG INSTITUTE OF CHARTERED SECRETARIES THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS International Qualifying Scheme Examination CORPORATE GOVERNANCE PILOT PAPER Time allowed 3 hours Section A Compulsory questions Section B 5 long questions (attempt any 3) DO NOT OPEN THIS PAPER UNTIL INSTRUCTED TO DO SO BY THE INVIGILATOR Important Note: Candidates are allowed 15 minutes reading time to read through the question paper before the commencement of the examination between 2:15pm- 2:30pm. During the reading time, all candidates must be silent and must not write or mark anything on their question papers or answer books. Candidates must close all their reference books, notes or other unauthorised materials and put these under their chairs. If any candidates write or make any marks during the reading time, or if they speak or in any other way communicate with anyone either in or outside the examination hall during this period or read any unauthorised materials, they will be disqualified from continuing this examination paper. Once candidates have opened the question paper, they are not allowed to leave the examination hall until 3:00pm. Page 1 of 8

2 THIS IS A BLANK PAGE Page 2 of 8

3 SUBJECT NO 10M CORPORATE GOVERNANCE PILOT PAPER The examination paper is divided into TWO Sections. Section A is compulsory and carries 40 marks. Candidates should attempt THREE questions from Section B, all of which carry 20 marks each. You should allow yourself approximately 70 minutes in total to answer the questions in Section A, and 35 minutes for each of the questions attempted in Section B. Saturday afternoon 13 December 2008 Time allowed: 3 hours SECTION A (Compulsory answer ALL parts of this question) Question 1 Quality M Limited is a Hong Kong listed company. The business was established in 1955 by Kwong Poon Koon (PK), who was married to Doris until his death. They had three sons: Albert, Bertie and Charles. PK died in 1990 and left his majority shareholding in Quality M (68% of the issued capital) to a trust controlled by Doris. She has the power to exercise the voting rights attached to the shares. Doris has never taken an active role in the company s management and instead her three sons were appointed directors of the company many years ago. Albert is Executive Chairman of the Board of Directors, Bertie is Deputy Chairman and Charles is the Finance Director. Old family friends or well-known public figures have generally been appointed as non-executive directors; many of them have professional qualifications. Board turnover has been very low with many of the non-executive directors serving for more than 10 years. The non-executives and the three brothers have been re-elected periodically at company AGMs. The board has created audit, remuneration and nomination committees but the brothers have usually made recommendations to the committees on relevant matters and these have been approved as a matter of routine. Quality M has been very successful in the Hong Kong real estate development market and is one of the four leading firms in the sector. Over the last 10 years, the company has also been active in the same market in mainland China, especially in Shanghai. Profits have been generally good. Occasionally, newspaper reports have raised the issue of management succession and a recent bribery scandal involving in Shanghai government officials has created speculation in the media that Quality M may have been involved with the accused officials, though no action has yet been undertaken by the mainland authorities. Page 3 of 8 3

4 In January 2008, Quality M issued a press statement that stated that Albert was taking a three-month sabbatical and his duties would be assumed by Bertie. This caused surprise in the press and some newspapers suggested that Albert might be seriously ill. Gossip magazines, however, suggested that the real issue was Albert s relationship with a feng shui master, Eric. A magazine suggested that Eric s influence over Albert was distorting his business judgment and that the other brothers did not like Eric s meddling in Quality M s business affairs. On 25 April 2008, QM issued another announcement, saying that the board would discuss and vote on a motion that Albert should be permanently replaced by Bertie as Chairman and be relieved of all executive duties at a meeting scheduled to be held on 1 May Albert made it known that he was furious with this course of action and was taking legal advice. On 29 April 2008, Albert issued legal proceedings at the High Court seeking an injunction to prevent the board from removing him as chairman and to order the Board to reinstate him to his previous executive functions. The court rejected his application on the basis that the decision as to who should chair the board of directors was an internal matter and, in the absence of impropriety, the court would not intervene. At the subsequent board meeting Albert was removed from his role as chairman and Doris, aged 86, was appointed to replace him. On 5 May 2008, the People s Daily reported that the mainland authorities had been investigating high level corruption in the real estate market in Shanghai and that Quality M has been required to provide relevant information. The Hong Kong media has reported that Eric was a close friend of an important government official and he used his influence to help Quality M obtain valuable contracts and also to provide Albert with real estate development opportunities on his own account. The share price of Quality M suffered a dramatic fall as a result of this report. Page 4 of 8 4

5 Required: (a) Discuss the provisions of the Combined Code and the relevant parts of the Hong Kong Listing Rules in respect of the composition of the board and the effectiveness of existing corporate governance procedures of Quality M. What advice would you give the new chairman? (25 marks) (b) Discuss the responsibilities of the directors under Hong Kong law for any losses sustained by Quality M resulting from Albert s misconduct in the mainland property market. Who may take legal action, against whom and by what mechanism? (15 marks) (Total: 40 marks) Page 5 of 8 5

6 SECTION B (Answer THREE questions from this section) Question 2 Discuss the current insider dealing regime contained in the Securities and Futures Ordinance, identifying any weaknesses in the system and suggesting appropriate reforms. Question 3 The Hong Kong capital market has become the principal location for initial public offerings of large mainland companies. Discuss the related challenges that this may impose on the Hong Kong legal system and the regulatory authorities in ensuring high standards of corporate governance in these mainland companies. Question 4 Consider the role of the company auditor in respect of ensuring good corporate governance. What are the major provisions of the Companies Ordinance and the relevant codes in this regard? Comment on whether they are sufficient or appropriate and suggest improvements to enhance the existing system. Question 5 Corporate social responsibility has become a significant issue in some jurisdictions. Explain the concept and consider the arguments for and against a legal obligation being imposed on companies to adopt and implement such a policy. Question 6 Explain the Hong Kong disclosure regime for listed companies. Critically evaluate whether the existing provisions are adequate to achieve an appropriate level of transparency and if not, what reforms should be implemented. End of Examination Paper Page 6 of 8 6

7 THIS IS A BLANK PAGE Page 7 of 8 7

8 THIS IS A BLANK PAGE Page 8 of 8 8

THE HONG KONG INSTITUTE OF CHARTERED SECRETARIES THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS

THE HONG KONG INSTITUTE OF CHARTERED SECRETARIES THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS International Qualifying Scheme Examination CORPORATE GOVERNANCE JUNE 2011 Time allowed 3 hours