‘Keep at it’: Lessons from two decades of corporate governance advocacy in Asia

The Asian Corporate Governance Association (ACGA) has the sort of profile that shareholder groups dream of.

Created in the aftermath of the Asian financial crisis, ACGA has managed to stay in business for over two decades while agitating for corporate governance improvements across disparate local markets. It has maintained a small but select membership which reads like a who’s who of institutional investing, and its regional rankings are keenly monitored by Asia-watchers and decision-makers.

This was not the case when the association was starting out, according to Jamie Allen, secretary general of ACGA – who will in the next few months step down from the organisation he founded and has led since 1999.

“I always divide our history into blocks and the first five years were extremely difficult,” says Australia-born Allen.

He was one of many foreigners who swept into Hong Kong in the 1990s, when “in many ways it was a lot more international than it is now”. Stints as a local reporter, then as an editor with the Economist Intelligence Unit followed, before the ACGA was formed as a “private sector committee” to promote corporate governance best practices.

Asian financial crisis

The lingering effects of the Asian financial crisis meant there was a lot of interest – and financial upside – in corporate governance, but the decision was ultimately made for ACGA to become a non-profit and focus on its key areas of research and regulatory engagement.

“It was a good thing we didn’t go down the private consulting route in the end,” reflects Allen. “We would have been cleaned out by the likes of BCG, McKinsey and PwC!”

It was also decided that ACGA would exclude service providers and adopt a membership vetting procedure to meet the need for what Allen describes as a “genuinely new type of NGO”.

The upstart organisation turned down companies that clearly saw membership as a PR exercise, and also investors who wanted ACGA to drive activist strategies, shareholder lawsuits or to act in other areas outside of the group’s narrow remit.

“This drove a few companies around the bend, I think,” says Allen. “The sum total of it all is that we don’t have as much money as we might have otherwise had, which is a bit painful. It’s probably why we have 100 or so members rather than 300. But on the other hand, it’s meant that we are much freer from conflicts of interest.”

ACGA’s first big test came in 2006, when it began campaigning to modernise proxy voting systems across Asia.

“The voting system in Asia was a complete antiquated mess in the mid-2000s. Our members either weren’t getting agendas in time, or received agendas which did not have sufficient details. They would also send in their ballots which wouldn’t be counted because voting would be done by show of hands, not by poll,” says Allen.

“We picked AGMs because we thought that this is bread and butter stuff, this is what corporate governance is about. If we can’t fix this, we can’t fix anything.”

The campaign, conducted over the best part of 10 years, saw a period of significant improvements in the accountability and transparency of AGMs across the region. It also led the ACGA to formalise different engagement working groups and establish a forum for members to decide which issues and markets should be prioritised.

An assortment of investors with exposure to Asia began signing up to the corporate governance body as its presence grew, including SSGA, Standard Life, Capital Group, TIAA, CalSTRS, Elliott and Railpen. Around half of ACGA’s members have been with the body for a decade or longer.

In 2012, Norges Bank Investment Management (NBIM) signed a three-year sponsorship deal with ACGA, later extended for a total of seven years. “This was a really big break for us and helped tide us through the second decade of ACGA,” says Allen.

Staying the course

Asked for pointers on operating in Asia, he replies: “You can achieve a hell of a lot if you just stick around.”

He adds: “People don’t like foreigners who just come, pontificate and then leave, which is understandable. I think those who come here wanting change often underestimate the importance of patience and being consistent.

“Eventually you persuade people – or they get so sick of listening to you they start paying attention to what you are saying.”

A case in point is CG Watch, ACGA’s biennial survey and ranking of corporate governance practices in 12 Asian markets. The body received a suspicious and hostile reaction when it began issuing the report in 2000, Allen recalls, with various regulators questioning ACGA’s motives and foreign-led membership.

The association’s persistence won out in the end. “The thing is, you get a poorer ranking when you don’t cooperate, so it changed from criticising us to trying to compete in the rankings,” says Allen.

“I realised the tide had turned when we started getting Christmas cards from regulators around 2010, along with 20- or 30-page rebuttals to our findings.”

CG Watch is now enough of a fixture that new editions can elicit spirited editorial and regulatory reactions. The ignominy of getting a poor ranking also makes it a useful talking point for ACGA’s policy engagements with regulators and government departments.

Japanese reform

Even successful campaigns can be arduous, multi-year commitments. Allen has stories about campaigning in the early noughties to reform outdated Japanese corporate practices, only to be told that what ACGA was proposing was “shocking” and would never be accepted by companies.

In the present day, many of the corporate government improvements ACGA had called for, including safeguarding shareholder rights and putting an end to the practice of hoarding cash, are now the centrepieces for the Japanese administration’s root-and-branch plan to make the country’s companies more attractive to foreign capital.

“It’s taken some 15 years for issues like capital efficiency to really come out front and centre but it was always just a matter of time,” says Allen.

“We have also received some criticism for supposedly taking a US shareholder primacy approach, but we believe that a company’s long-term interests are aligned with that of all stakeholders. Secondly, shareholders in Asia have traditionally gotten the raw end of the stick, particularly minority and retail investors, so that is our focus.”

Looking to the future

Next in line for ACGA’s top job is former BlackRock APAC stewardship head Amar Gill, a longtime affiliate of ACGA and a co-author on CG Watch reports for more than a decade.

Gill inherits a lengthy list of to-do items, including growing ACGA’s membership of Asian asset managers and listed companies – which his predecessor describes as a “hard sell” for the body so far.

Allen is optimistic that Gill’s asset management background will help grow the organisation faster, but hopes it will continue with an investor-focused approach to corporate governance.

“I also think there is a bigger role for ACGA in the ESG space because we have the governance expertise, research, and we have comparative knowledge of the region,” says Allen. “We certainly are not looking to replace organisations like the AIGCC, but there is more that we could be doing.”

Allen wants to keep working after his ACGA chapter closes, but only on “interesting” corporate governance projects he can do in Sydney, where he is returning after decades in Hong Kong. Retirement is not on the cards.

Asked about the biggest roadblock to good corporate governance in Asia, Allen does not hesitate. “Corruption and cronyism,” he says. “It’s a bit like a cancer because in some markets it’s just not going away.

“Public governance sets the tone for corporate governance. It’s no great surprise that the markets at the top of our survey have much more transparent, accountable systems of government than those at the bottom of the survey.”