Responsible Investment

Is corporate governance progressing in Asia?

Discover what progress on corporate governance is being made in Asia.
July 2021

Tenisha Elliott

Senior Associate, Responsible Investment

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In May, the Asian Corporate Governance Association (ACGA), which we are members of, published its latest CG Watch flagship report. We welcome the release of the report, which ranks 12 countries in Asia Pacific (Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand) on the impact of market stakeholders in promoting corporate governance best practice. The analysis and ensuing recommendations provide a great resource for investors to learn about the governance landscape across the region, including progress in – as well as challenges of– companies’ adoption of more robust governance practices.

We have noted significant progress toward enhancing CG policy frameworks across Asian markets over the past 20 years. The Asian Financial Crisis in the late 1990s led to the emergence of the first governance codes in the region. To develop these voluntary codes, regulators looked to the West for the ‘Gold Standard’ of CG norms – concepts such as an independent board, an audit committee and a focus on risk management and business reporting became embedded in Asian governance codes. The effectiveness of the codes in driving better practices, however, has been less than stellar. Companies have adopted the letter rather than the spirit of the codes, and the transposition of Western best practice failed to factor in cultural norms.

Our engagement on corporate governance

At BMO GAM, we have more than 20 years of experience engaging on corporate governance concerns across Asia Pacific, including the key markets of China, Japan, India and Australia. In the past 18 months, we have engaged 62 companies across the region on a wide range of governance issues, mainly ESG Oversight, Board Independence, Board Diversity, Board Effectiveness and Remuneration.

On ESG Oversight, we have asked companies to develop and implement sustainability management strategies that address key material ESG issues and are linked to their long-term business strategies. We have also pushed for more robust sustainability governance frameworks and improved ESG-related disclosures. For example, in 2020, we engaged ComfortDelGro Corp and asked the company to be more explicit about its program to maximise its contribution toward achievement of the UN SDGs and to set formal targets. We were pleased to see that this year the company has set up a new board-level Sustainability Committee and committed to the Science Based Targets Initiative.

Concerns remain

Despite some progress, we still have concerns about the independence and diversity of boards in Asian companies. Concentrated ownership structures and an ingrained tendency to appoint high-profile or “management-friendly” (i.e., those that will not challenge management) individuals are a couple of the issues that slow down more significant improvements in the quality of governance leadership on Asian boards. Women remain vastly underrepresented in corporate boardrooms across the region, with Asia trailing global trends in board (and senior management) gender diversity. Conversations on the need to have more women on boards abound, but there has been a little headway on it. All in all, the lack of sufficient independent and diverse representation on boards is still a key issue in the region. Proposals relating to board director elections represent the most common issue investors voted against at Asian company AGMs, according to the CG Watch report.

Where to from here?

Regulations and voluntary norms abound, but as has been a long-standing issue in the region, we remain concerned that companies will embark on a “box-ticking” exercise rather than apply the spirit of these regulations. We feel this is exacerbated by the lack of consistent corporate access for investors to board and key committee members, prohibiting effective engagement. We will continue to work with like-minded investors and organisations, as well as independently, to engage with our investee companies on these issues.

Risk warnings

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

BMO Global Asset Management’s voting, engagement and public policy work is conducted independently of the wider BMO Financial Group. Positions taken by BMO Global Asset Management may not be representative of the views of the BMO Financial Group as a whole or of the other lines of business.

Use our handy glossary to look up any technical terms you are unfamiliar with.

Get to know the author

Tenisha Elliott, Associate, Analyst, Responsible Investment

Tenisha joined BMO in 2013 and focuses on corporate governance and proxy voting as well as covering environmental and social analysis of companies in the apparel and services sectors. She is a lover of fashion and has a fledgling social media presence.

Risk warnings

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

BMO Global Asset Management’s voting, engagement and public policy work is conducted independently of the wider BMO Financial Group. Positions taken by BMO Global Asset Management may not be representative of the views of the BMO Financial Group as a whole or of the other lines of business.

Use our handy glossary to look up any technical terms you are unfamiliar with.

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