Party transactions in Asia:
Companies should adopt greater transparency
Ramani KANGARAARACHCHI
Investors in Asian companies should control shareholders to prevent
the possibility of being disadvantaged by related party transactions as
abusive related-party transactions take place in Asia due to weaknesses
in the mechanism that govern them. Therefore, investors should be more
vigilant when such transactions are disclosed and more critical when
they are put up for a vote, Head of CFA Institute Centre Asia Pacific
Office, Lee Kha Loon told Daily News Business.
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Lee Kha
Loon |
He is in Sri Lanka on the invitation of the Government to make a
presentation to Sri Lankan authorities on the improvement of investor
protection against abusive related-party transactions in Asia.
Loon said most of the largest listed companies in Asia are owned by
families or the state with diverse business interests and because there
is often no separation of ownership and control, related party
transactions are prone to misuse by families for their private interest
or the state for its own agenda.
According to a report by the CFA Institute, the ownership structure
of most Asian companies limits the board representation of minority or
independent shareholders, but it said that investors should not
demonstrate defeatist behaviour by voting with their feet. Instead, they
should exhaust all available avenues to express their views.
Loon said that good corporate governance is fundamental to free and
efficient markets, and investors should be able to put their money in
companies without fear that controlling shareholders will misappropriate
corporate assets at the expense of delivering returns to the investor.
Loon said that related-party transactions should pass effective
approval and disclosure processes. Regulators in Asia that have not
already done so should define material related-party transactions and
the threshold values must be disclosed or subject to approval
procedures.
He said that Directors have a duty of loyalty to the company and this
duty becomes self serving for directors who are themselves controlling
shareholders and as such Corporate boards should include more
independent directors.
Companies should adopt greater transparency on related-party
relationships. One way of doing so is voluntarily disclosing the
identities and level of ownership of related parties that own a
reasonable sizable portion of the company’s shares.
Corporate laws in Asia should take into consideration the reality
that minority investors are prone to abuses by controlling shareholders
and, therefore, regulations on related-party transactions should be
backed by law, Loon said. |