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International Company and Commercial Law Review
2008
Corporate governance in Hong Kong: on certain issues of minority
shareholders' rights and protection in listed companies
Rita Cheung
Subject: company law
Keywords: Corporate governance; Derivative claims; Hong Kong; Listed companies; Minority
shareholders
*I.C.C.L.R. 181 Introduction
In Hong Kong, the protection of minority shareholders is emerging as a key issue of the corporategovernance debate. Over the years, there has been much consideration of, and recommendationson, a fundamental reform 代写留学生论文of minority shareholders' rights.1 In spite of gradual corporate governancereform and good governance structure on paper, the improvement of minority shareholder protectionhas largely been a half-hearted project. The magnitude of challenges ahead is still significant,
especially with regard to listed companies where controllingshareholders and related insiders are aprominent feature of ownership structures in the region.This article seeks to examine the minority expropriation problem in Hong Kong listed companiesposed by the dominance of controlling shareholders, the existence of a pyramidal corporate structureand the inadequacies of shareholder legal protection from a comparative law perspective. Particularattention is given to the defects of the law on related party transactions, and the problems associated
with the appointment and removal of directors in family-controlled companies. In outline, it is arguedthat ownership of Hong Kong listed companies is dominated by large block-holders, namely families.
Family firms are typically controlled by successive chains of ownership, coined as pyramidalownership structure, leading to the ultimate controlling shareholders. It is contended that the
inadequacies of legal protection for minority shareholders under Hong Kong company law and
securities regulation enable the controlling shareholders to use the complex corporate pyramids as a
means of expropriation. As part of this, the role of law in limiting the risk of minority shareholder
expropriation is considered. This article concludes with a discussion of the corporate governance
framework in Hong Kong listed companies and the importance of minority protection in the general
system of corporate governance.
Minority expropriation problem--prevalence of family-controlled companies
The vast majority of Hong Kong companies, whether listed or not, are family-owned businesses
dominated by controlling shareholders.2 Ownership of Hong Kong public listed companies isdominated by a handful of wealthy families that exercise a disproportionate amount of control overtotal listed assets primarily through the use of corporate pyramids--the only sizeable exception isHSBC Holdings Plc, which is a UK-domiciled and UK-listed company.3 Indeed *I.C.C.L.R. 182family-controlled groups predominate in East Asia4 (with the exception of Japan)5 and continental
Europe.6 Recent research studies have found that, except in countries with very good shareholderprotection such as the United States, United Kingdom and Japan, diffuse ownership is relativelyuncommon.7 Rather, most corporations are controlled by large block-holders typically playing a veryactive role in management.8
The benefits of large investors in enhancing corporate value have beenthe subject of extensiveresearch. At one end of the spectrum, earlier research studies show that there is a positive link
be