Cultural divide could hurt single world view
Corporate governance has become a buzzword in Asian business circles - particularly those with operations or dealings with the United States or American companies.
The debate has been whether Western and Asian views will ever converge. CPA Australia president Low Weng Keong believes the increasing interconnection of different countries' economies can affect aspects of business.
'[The] Sarbanes-Oxley [Act, passed by the US in 2002] is important in that not only did it bring about change to the way accountants in the US operate, but due to the increasing connectedness of the businesses and economies of different countries its effect was more widespread,' he says. Countries with subsidiaries of US-listed companies were affected in that the audit of those subsidiaries by local auditors became subject to US oversight.
'Globalisation has been a key factor in the acceptance by countries of adoption of IFRS [International Financial Reporting Standards] and, therefore, 'a common language for financial reporting',' Low says.
He believes such examples suggest 'a single world view' on corporate governance and related party transactions could emerge. 'However, we must be mindful that there are cultural differences which could differentiate what might be reasonably expected to be applicable in the West from being so in the East, and full convergence could take some time to achieve.'
Low adds that he would like to see the profession 'come even closer together globally' on raising and setting standards.
Bernard Chan, president of Asia Financial Group, also thinks the long-term trend is towards convergence. 'Let's not forget that Western corporate governance has had some disasters recently, especially in the financial sector, and everyone needs to improve in one way or another,' he says. 'In Hong Kong, we're seeing a bit of a public backlash against aspects of the business world. The community is getting less tolerant of certain types of behaviour.'
Beyond loss of reputation, Patrick Yeung, CEO of Asian Capital Holdings, warns that recent settlements by auditors can easily be translated into higher audit costs for listed companies. 'Auditors are more cautious because of severe legal consequences, but it is still hard to determine if audited accounts are getting more meaningful and reliable,' he says.
PwC partner Tim Lui thinks China's corporate governance progress is a continuing journey, and that it is 'unrealistic to expect they [firms and companies] will all become good' simultaneously.
'State ownership is still very significant, and companies there are not dependent on foreign capital. But as Chinese companies become more global in outlook, they will have no choice but to improve corporate governance,' Chan says.
To Lui, change begins with a 'proper corporate governance mindset' and having the 'right people championing it internally'. China is a big market and 'many corporations are at different levels of development. The companies that are more active in international areas realise their stakeholders expect them to do well so they put great effort into enhancing their corporate governance'.
Low believes the profession has always been concerned about operating in the public interest. 'However, balancing the merits of rules and standards and their applicability globally with the costs of compliance is a challenge.'
