Hong Kong is a unique place. It is a former British colony. It enjoys special governance practices and civil liberties not found elsewhere in the People’s Republic of China (“PRC”). As a financial hub, it is considered to have strong corporate governance practices, especially when compared to other Asian markets. Yet, the foundations of Hong Kong’s uniqueness appear to be cracking as the cloak of personal privacy is being in a way that can tarnish Hong Kong’s reputation for its governance practices, civil liberties and corporate governance.
At issue is a small portion of the voluminous 2011 Companies Bill that effectively curtails the ability of individuals to find information about (current and former) corporate directors, reserve directors, company secretaries by restricting identifiable information that has been publicly available. In Part 2, Division 7, Subdivision 1, Sections 48, 49 and 50 of the bill as passed by the Bills Committee of the Legislative Council, the bill withholds the ability for individuals to lookup the residential address as well as the Hong Kong identity card number or the passport number of the above mentioned persons in the Company Registry. A prima facie view would make this provision seem reasonable out of respect for personal privacy (see: page 22) and perhaps personal security, albeit for corporate officers, but no provision is available for ordinary individuals. However, this provision provides a chilling effect on the freedom of speech and press, but also on a useful tool to research corporate governance in Hong Kong.
The ability to look up information about corporate officers has been a highly effective tool for journalists to investigate the links between political power and wealth in China. Recently, both Bloomberg and The New York Times used the ability to look up addresses and identifiable numbers to learn about the extraordinary amounts of wealth accumulated by the families (and associates) of China’s president-in-waiting, Xi Jinping and China’s Premier, Wen Jaibao. The articles were watershed moments that shed light on how China’s political-connected can turn their connections into corporate wealth. The articles also hit on a deep political nerve to the point that both publications were temporarily blocked in China by Chinese authorities. As a result of The New York Times article, the publication found its network being continuously hacked by the Chinese government in retribution for exposing the wealth of Mr. Wen’s family and their associates.
As Hong Kong is increasingly “a popular place for Chinese to setup businesses, in some case to obscure their assets through a complex web of shell companies and directorships”, the need to confirm identities and match them to parent companies, shareholdings, connected or related transactions is paramount. For investors (and researchers), studying corporate linkages is a necessary adjunct of their profession to fulfill their obligations to investors. Yet in the wake of several Chinese companies being engulfed in situations where the lack of disclosure has resulted in negative attention, the necessity for third parties to act as independent arbiters of fact is even more important.
While Glass Lewis & Co. does not use residential addresses, identity card or passport numbers in its research, it is worthy to note that the job of ensuring corporate governance often goes beyond what is presented in an annual report or shareholder circular. In this case, journalists and independent third parties can be useful in finding details that, when made public, can ultimately lead a company to republish corporate information. As such, by limiting the currently available data as contained within the new law would make harder the already tedious “sifting through often-byzantine layers of shell companies and nominee shareholders to identify the true owners of certain assets,” and the ability for third parties to add information to the public sphere and marketplace of ideas is unnecessarily curtailed. As such, it seems unwise to seek greater “privacy protections” to a specific class of individuals, when it is not extended to all. Instead, in exchange for increased “privacy,” perhaps the Legislative Council should work to increase transparency of the Hong Kong corporate world and remove the cloak that is casting a dark shadow over corporate governance and civil liberties in this unique place.