1. Corporate Governance
From: Kitty Choi, Head, Efficiency Unit
To: Heads of Department
Date: 29 July 2009
Governance has increasingly become an important management topic for heads of
Head, EU
departments. They are ultimately held accountable to the public for effective Kitty Choi
governance of non-government organisations (NGOs) and various agencies under kkychoi@eu.gov.hk
their purview to ensure public monies are properly used and the public good Tel: 2810 2021
protected. Deputy Head, EU
Patricia Lau
plau@eu.gov.hk
The Efficiency Unit (EU) has recently released a public sector reform report titled Tel: 2810 3463
‘An International Overview of Corporate Governance in Arms-Length Agencies’.
To supplement that report the EU has collaborated with Aon Global Risk Consulting Assistant Director, EU
to publish this newsletter with the aim of providing colleagues with an appreciation of Peggy Leung
pwkleung@eu.gov.hk
how corporate governance can be managed better in practice. Aon has shared with Tel: 2810 2306
us some of its proprietary approach which has been tried and tested on local
non-government organisations. Assistant Director, EU
W F Yuk
wfyuk@eu.gov.hk
Why Corporate Governance is Important for Government Departments? Tel: 2165 7228
Assistant Director, EU
Poor corporate governance can bring about the decline or even demise of an Steve Barclay
organisation 1. The purpose of good governance is to add “sustainable” value to the sbarclay@eu.gov.hk
organisation; reduce financial, business and operational risks; strengthen stakeholders’ Tel: 2810 3408
confidence in the entity; and assist in the prevention of fraudulent, dishonest and PMSO, EU
unethical behaviours. At risk is the credibility of the Government and the public’s Hedy Lo
trust in it. hwhlo@eu.gov.hk
Tel: 2165 7288
The key corporate governance principles of accountability, transparency, integrity and PMSO, EU
stewardship are the pillars of the Hong Kong’s public administration. These David Hooi
dwkhooi@eu.gov.hk
principles are extended to the arms-length organisations that provide public services. Tel: 2810 3701
The primary duty of the department is to ensure that public monies are properly used,
public services are delivered and the public good protected. Department heads PEO, EU
need to have assurance that there are systems in place to alert them of any Judy Li
jckli@eu.gov.hk
abnormalities, and to provide them with remedies. Tel: 2165 7206
How do we distinguish good and bad corporate governance?
One can detect indicators of the quality of corporate governance by observing the
behaviours of the governing bodies, on how meetings are run, and on how the
directors or senior officials conduct themselves in steering the entities to meet their
objectives. Some key signs of good corporate governance are:
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Public Sector Governance – Australia, CCH 2004
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2. Head, EU
Kitty Choi
Signs of Good Corporate Governance Possible Evidence kkychoi@eu.gov.hk
Tel: 2810 2021
Commitment to good corporate Report of corporate governance practices
governance by members of the governing in annual report; proactive in implementing Deputy Head, EU
body necessary systems, not just those that are Patricia Lau
plau@eu.gov.hk
legally mandatory Tel: 2810 3463
Formal board structure Documented terms of reference of all
committees and job descriptions for Assistant Director, EU
Peggy Leung
chairman and directors; key committees in pwkleung@eu.gov.hk
place Tel: 2810 2306
Formal board processes in place and the Formal meeting procedures (e.g. quorum,
Assistant Director, EU
board focuses on strategic and directional attendance records, decision making W F Yuk
issues processes, minutes); segregation of wfyuk@eu.gov.hk
executive and non-executive roles Tel: 2165 7228
The governing body demonstrates Annual declaration of conflicts of interests; Assistant Director, EU
directorship and professionalism directors declared interest and abstained Steve Barclay
from voting on connected transactions; at sbarclay@eu.gov.hk
Tel: 2810 3408
least 50% attendance rate; the chairperson
is able to steer meetings and ensure PMSO, EU
everyone contributes to decision making Hedy Lo
hwhlo@eu.gov.hk
The governing body demonstrates Annual report published within 3 months Tel: 2165 7288
transparency and full disclosure of financial year end; key papers delivered
48 hours prior to a meeting; minutes PMSO, EU
delivered to attendees within 7 days after David Hooi
dwkhooi@eu.gov.hk
meeting Tel: 2810 3701
The governing body demonstrates public Formal decision making processes; board
accountability decisions are made collectively, not by one PEO, EU
Judy Li
person; split role of non-executive jckli@eu.gov.hk
chairman and CEO; independent audit Tel: 2165 7206
Formal and few overlapping decision Approved delegated financial authority;
making processes decisions made are supported by analysis,
are followed through and cannot be
reversed without a formal process
The governing body focuses on strategy 3 to 5 year strategic plan is in place and
and policy formulation, not operational updated annually on a rolling basis; annual
decisions business plan that aligns with the strategic
plan in place
Established risk management framework Internal audit team reports to the audit
and effective and internal controls, so committee; formal policies to deal with
problems are assessed early, managed and non-conformance, policy violation and
solved prudently fraud
Risk and crisis management systems in The board is able to identify and deal with
place the top risks with appropriately drawn up
contingency and service recovery plans in
the event of crisis
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3. How to manage corporate governance proactively and systematically? Head, EU
Kitty Choi
Aon has developed a systematic four-stage 12-step approach, which follows the kkychoi@eu.gov.hk
logical steps of finding issues, designing solutions, taking action and taking feedback. Tel: 2810 2021
This approach facilitates the governing body to steer, direct and monitor the
organisation’s operations and performance. Deputy Head, EU
Patricia Lau
plau@eu.gov.hk
Tel: 2810 3463
Assistant Director, EU
Peggy Leung
pwkleung@eu.gov.hk
Tel: 2810 2306
Assistant Director, EU
W F Yuk
wfyuk@eu.gov.hk
Tel: 2165 7228
Assistant Director, EU
Steve Barclay
sbarclay@eu.gov.hk
Tel: 2810 3408
PMSO, EU
Hedy Lo
hwhlo@eu.gov.hk
Tel: 2165 7288
PMSO, EU
David Hooi
dwkhooi@eu.gov.hk
Tel: 2810 3701
Figure 1 Aon’s Institutional Governance Improvement Programme
PEO, EU
Judy Li
The typical starting base is a scan of the governing body (the board). The board scan jckli@eu.gov.hk
aims to quickly identify potential areas of weaknesses in the corporate governance Tel: 2165 7206
infrastructure.
A 10-part questionnaire survey assesses the structure and processes of the board. Each
part uses 10 survey questions to address a particular attribute of corporate governance.
Each question is rated on a 0-5 scale based on evidence of behaviour of the board.
For example, for a question on whether roles of the board are clearly defined, evidence
of an updated director’s handbook will score a “5” and absence of any written terms of
reference will be a “0”. The summated score forms a Board Scan Index particular to
the organisation. As a reference, out of a perfect score of “5”, around “1.5” is
considered a pass. This means the organisation has started some individual elements
but significant exceptions are found. The score facilitates performance tracking when
the scan is repeated periodically. It is designed to be self-assessed but is more effective
if administered by a third party. Additional benefits accrue when it is followed by a
post-survey workshop, engaging the board members to discuss findings, agree on gaps
and action plans.
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4. Head, EU
Two of the 10-part questions are illustrated below: Kitty Choi
kkychoi@eu.gov.hk
Tel: 2810 2021
Board Scan – the 10 parts
Deputy Head, EU
1. Commitment to Effective Corporate 6. Public accountability Patricia Lau
Governance 7. Decision Making plau@eu.gov.hk
Tel: 2810 3463
2. Board structure 8. Strategy and policy formulation
3. Board processes 9. Internal control and compliance Assistant Director, EU
Peggy Leung
4. Directorship and professionalism 10. Risk and Crisis Management pwkleung@eu.gov.hk
5. Transparency and disclosure Tel: 2810 2306
Each part contains 10 questions on a 0-5 scale. Two examples below:
Assistant Director, EU
1. Commitment to Effective Governance 7. Decision Making W F Yuk
wfyuk@eu.gov.hk
1.1 Chairman’s and directors’ verbal and written 7.1 A clear decision making process Tel: 2165 7228
support of better corporate governance (hierarchy, checks and balances,
1.2 Mission clearly articulated and followed by delegation of authority) Assistant Director, EU
the board 7.2 Practices to push decision making Steve Barclay
sbarclay@eu.gov.hk
1.3 Respective written roles of the board and to those who need to make them Tel: 2810 3408
senior management are clearly defined 7.3 No one has the authority to
1.4 Organisation’s corporate governance code single-handedly put the PMSO, EU
in place organisation at risk (e.g. by Hedy Lo
hwhlo@eu.gov.hk
authorising major commitment)
1.5 Code of ethics published (ICAC or own) Tel: 2165 7288
7.4 Clear and updated organisation
1.6 Strong culture for fairness and equity (e.g.
chart and reporting line PMSO, EU
not using public funds for personal David Hooi
expenses) 7.5 All major board decisions on new dwkhooi@eu.gov.hk
projects are supported by proper Tel: 2810 3701
1.7 Directors have clear procedures on
business case arguments
highlighting potential areas of conflict PEO, EU
7.6 Complex decisions are vetted by a
1.8 Papers for board meetings are disseminated Judy Li
standing committee before jckli@eu.gov.hk
at least 48 hours before meeting
presenting to the board Tel: 2165 7206
1.9 Minutes are written up and distributed
7.7 A clear and transparent process to
within 7 days
reverse past decisions
1.10 Continual attempts to improve how
7.8 Management provides relevant
corporate governance practices are exercised
and appropriate amount of
information to the Board to
facilitate decision making
7.9 Board decisions are minuted and
followed through
7.10 Service professionals are able to
make operational decisions to deal
with customers
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5. Conclusion Head, EU
Kitty Choi
For the governing body, the board scan is a logical starting point to take stock of the kkychoi@eu.gov.hk
Tel: 2810 2021
organisation’s governance, identify gaps to close and effect improvements. There is not
a single one-size-fits-all strategy for achieving effective corporate governance. Deputy Head, EU
However, establishing agreed upon metrics and clearly defined performance and Patricia Lau
conformance indicators, as well as installing an effective feedback system, provides a plau@eu.gov.hk
Tel: 2810 3463
good platform for sustainable and effective corporate governance.
Assistant Director, EU
Efficiency Unit Peggy Leung
pwkleung@eu.gov.hk
July 2009 Tel: 2810 2306
Assistant Director, EU
W F Yuk
wfyuk@eu.gov.hk
Tel: 2165 7228
Assistant Director, EU
Steve Barclay
sbarclay@eu.gov.hk
Tel: 2810 3408
PMSO, EU
Hedy Lo
hwhlo@eu.gov.hk
Tel: 2165 7288
PMSO, EU
David Hooi
dwkhooi@eu.gov.hk
Tel: 2810 3701
PEO, EU
Judy Li
jckli@eu.gov.hk
Tel: 2165 7206
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