CG Watch 2016
Ecosystems matter: Asia’s path to better home-grown governance

Hong Kong


HONG KONG – Thursday, 29th September 2016: CLSA Limited (CLSA), Asia’s leading and longest-running brokerage and investment group in collaboration with the Asian Corporate Governance Association (ACGA) today releases Corporate Governance (CG) Watch 2016. The most comprehensive assessment of corporate governance performance, issues and trends in Asia and the eighth joint report since 2003, CG Watch analyses and rates 12 key Asia-Pacific markets and 1,047 Asian companies.

CG Watch 2016 brings into focus the importance of the corporate governance ecosystem as the differentiating factor between the long-term system success and failure of markets and companies. Secretary General of the ACGA Jamie Allen believes no single stakeholder can drive the governance process. Allen says: “It is the collective interaction of all parties that delivers better outcomes. Reforms also matter but how markets and companies respond and deliver them is crucial. A more robust ecosystem demands accountability and compliance, which in itself makes for better governance.”

Singapore and Hong Kong consistently top the CG Watch 2016 market rankings due to the institutions – legal, regulatory and economic – that support those markets. The inclusion this year of Australia, the most robust governance ecosystem in Asia, provides a benchmark of the deficiencies in the region’s governance. Allen comments further: “In contrast to Australia, the controlled and hierarchical management-shareholder communication system in Asia may become, if it does not evolve, a significant impediment to corporate governance and capital market development in Asia.”

Singapore tops the CG Watch 2016 market rankings followed by Hong Kong, Japan, Taiwan, Thailand, Malaysia, India, Korea, China, Philippines and Indonesia. Australia was excluded so as not to skew past results as its CG score was significantly higher than top- ranked Singapore. ACGA assess markets based on a country’s cumulative score across five categories; CG rules and practices, enforcement, political and regulatory environment, accounting and auditing and CG culture.

CLSA’s survey of 1,047 companies shows that reliable correlation between corporate governance and share price remains elusive. CLSA Global Head of Thematic Research, Shaun Cochran says: “Share price performance is a function of an extraordinarily wide range of factors, most of which are outside governance’s direct sphere of influence. However, fundamentals and balance sheet are under management’s direct control and our analysis shows that better governance is associated with better fundamentals.”

CG Watch 2016 highlights that Environmental, Social and Governance (ESG) factors are becoming integral to investment strategies worldwide. Charles Yonts, CLSA’s Head of Sustainable Research publishes a complementary report to CG Watch which assesses companies on issues material to their sector in order to provide a CLSA Environmental / Social score.

Yonts says: “CLSA analysis shows that companies which achieve higher ESG scores perform better on earnings revision and payout while exhibiting better free cash flow quality and lower balance sheet risk. One could conclude that over time, these companies would perform better.”

This year, CG Watch 2016 incorporates the perspectives of various corporate-governance professionals in Asia from Aberdeen Asset Management, Blackrock, Glass Lewis and ISS Corporate Solutions. They express optimism for Asia’s governance future but are realistic in the context of clear structural differences across markets.