Faculty of law blogs / UNIVERSITY OF OXFORD

Capitalist Variations in 'Say on Pay': Corporate Governance Contradictions in Singapore and Hong Kong


Lance Ang
Lecturer at the School of Law of the Singapore University of Social Sciences


Time to read

4 Minutes

To rebuild trust in businesses amidst concerns of excessive executive remuneration following the global financial crisis, ‘say on pay’ reforms have been introduced in many major jurisdictions, most notably in the US under the Dodd-Frank Act in 2011 (OECD 2019). Singapore and Hong Kong, however, have bucked the international trend of allowing shareholders a binding or advisory vote on the remuneration of corporate executives. In Singapore and Hong Kong, ‘say on pay’ has either been rejected or ignored in the latest round of reforms to the corporate governance codes. This is despite studies which have found that Singapore and Hong Kong have the highest executive pay in Asia, with base salaries for top executives rising to more than 25% higher than their US counterparts. In 2016, for every US$100 that top executives in the US earned in base salary, their counterparts in Singapore and Hong Kong made US$132 and US$128 respectively. The conspicuous absence of ‘say on pay’ reforms in Singapore and Hong Kong in comparison with leading Western jurisdictions presents an interesting anomaly for analysis, especially when considering that Singapore and Hong Kong have been recognized by the World Bank to have the second- and fourth-best regulatory systems in the world for investors to do business respectively, along with a higher score on the shareholder rights index as compared with the US. While Singapore and Hong Kong share the same common law legal traditions with the US and UK, and are within the same bucket of liberal market economies (LMEs) as the ‘varieties of capitalism’ framework would suggest, they may be said to practice a different form of ‘regulatory capitalism’ from their Anglo-American counterparts under their corporate governance regimes.

In this light, in a recent paper entitled ‘Capitalist Variations in “Say On Pay”: A Look at Corporate Governance Contradictions in Singapore and Hong Kong’, I have adopted an institutional approach through an interdisciplinary lens to explore how the variances in ’say on pay’ regulations between Singapore and Hong Kong on one hand, and the US and UK, on the other, may be explained by the differences in their political, economic and cultural institutions. I argue that this may be attributed to a complex combination of institutional factors such as Singapore and Hong Kong’s distinctive patterns of corporate ownership, the relative restraint of institutional investors, the role of the state and ultimately the socio-political culture and ethos within a non-Western liberal democratic framework. In contrast with the prevalence of dispersed shareholdings in the US and the UK, companies in Singapore and Hong Kong have long been defined by a large concentration of ownership by family groups and the state.  ‘Say on pay’ is consequently less important as a means of mobilizing shareholder opposition against misaligned executive remuneration in Singapore and Hong Kong. The prevalence of block ownership further discourages institutional shareholder private ordering in pay governance, with little prospects of activist challenges to incumbent boards that are in the hands of controlling shareholders. While arguably akin to liberal market economies in an economic sense, Hong Kong and Singapore are also distinct from the standard Western liberal democratic model and characterised by their ‘corporatist’ structures. In such circumstances, the state is more insulated from populist pressures to curb executive remuneration, wherein institutions may be designed with a view to broader economic interests and, with it, the interests of corporate elites (ie controlling shareholders and managers) (Gordon & Roe 2004). A neo-Confucianist corporate culture with paternalistic control by dominant owners and a non-confrontational ethos further militate against the prospect of minority shareholder opposition and taking into account broader stakeholder interests, particularly those of employees, in pay governance.

‘Say on pay’ reforms in light of these institutional structures may lead to unintended regulatory consequences in Singapore and Hong Kong by either having no or little effect on restricting executive remuneration or even lead to shareholder acquiescence or encouragement of misaligned executive remuneration. Instead, it is contended that the inclusion of ‘say on pay’ within the framework of related party transactions would be a better regulatory alternative. In respect of the specific circumstances of Singapore and Hong Kong, and other jurisdictions sharing similar institutional characteristics, requiring separate ‘majority of the minority’ shareholder approval for prescribed thresholds and categories of executive compensation deemed ‘value-destroying’ for the firm’s shareholder and social capital (Enriques & Tröger 2019) can serve to empower the minority to mitigate potential disguised tunnelling by managers and affiliated controlling shareholders. It avoids the disruption of existing shareholding structures by keeping management power in the hands of controlling shareholders and possibly incentivizing them to act in the firm’s interests.

In this connection, I critique the ‘varieties of capitalism’ framework and other influential corporate governance theories—such as the seminal ‘law matters’ hypothesis and Roe’s ‘social democracy’ theory—in respect of their applicability to the Asian corporate context, which remains understudied despite the growing economic impact of Asian companies in the fastest-growing region in the world. My analysis reveals that further refinement to the existing orthodox theories and international metrics of corporate governance is needed. In doing so, my research contributes to the increasing interest in Asian models of corporate governance in its core thesis that the underlying capitalist institutions of political economy that support the regulatory state are better indicators over the prospects of the adoption, trajectory and, ultimately, the success of internationally prescribed corporate governance reforms. It concludes that these insights are critical to understanding why ‘say on pay’ reforms are, and are likely to remain, contentious issues in Singapore and Hong Kong and, if eventually adopted, are unlikely to function in a similar manner as compared to other common law jurisdictions. Beyond ‘say on pay’, it is contended that such insights are critical in evaluating other types of corporate governance reforms in the broader context in other similar Asian jurisdictions in comparison with capitalist Western democracies—namely, why are certain legal reforms not adopted in certain jurisdictions and, if adopted, how effective are such reforms likely to be?

Lance Ang is a Research Associate at the Centre for Asian Legal Studies at the National University of Singapore.


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