Issue 1 Volume 19 January 2023 DRIVING BUSINESS SUCCESS A RENEWED PURPOSE Loretta Fong, Institute President, on what the Institute’s new chapter means for members, and how it will help CPAs thrive amid change CFO TO CEO What helped chief financial officers successfully transition to the top role BOARD DIVERSITY Winners of the Best Corporate Governance and ESG Awards 2022 on building a diverse board SECOND OPINIONS Is embracing sustainability and green finance an option or prerequisite for CPAs? PLUS:
With a refreshed layout designed for easy browsing, the new A Plus website delivers a brand new experience to keep you up to date with the latest developments impacting the profession. Enjoy content on the revamped website carefully curated to help you catch up with Institute, accounting and business news and insights, as well as success stories that will inspire you. Whether browsing from your desktop or mobile devices, read up on the latest articles and seamlessly transition to articles on topics that interest you. As easy as it gets. Introducing the new A Plus website Pinpoint articles on specific topics, such as “sustainability” or “digital transformation” with the enhanced search function Bookmark articles of interest and read them later under the always present bookmark tab Find out what topics are covered at a glance with meta tags Consume content by the latest articles, issues, or under specific categories or topics, with options to view PDF or flipbook versions. ESG APLUS.HKICPA.ORG.HK
PRESIDENT’S MESSAGE APLUS January 2023 1 Loretta Fong President Dear members, “ I believe that in our redefined role, the Institute is on track to achieving its strategic goals and will play an even bigger role supporting members throughout their professional lives.” Happy Chinese New Year! Wishing you all a prosperous year filled with blessings, good health and joy. I hope everyone had a pleasant and relaxing break and you are now ready to leap into the Year of the Rabbit. The Year of the Rabbit truly feels like a new beginning for Hong Kong and the Institute. We have begun seeing major removals of the city’s anti-epidemic measures, including the vaccine pass requirements, social distancing measures, and issuance of isolation orders, as well as the border reopening between Hong Kong and Mainland China. Hopefully this will promise an imminent recovery to our economy. For the Institute, not only are we settling into our redefined role under last year’s regulatory reform, we are entering our 50th anniversary since our establishment in 1973. This is indeed a major milestone worthy of celebration and a great opportunity for the Institute to share its storied history with the public. With social distancing measures being phased out, we also anticipate a return to physical events, just in time for the festivities. This is also a new start for A Plus magazine. After publishing our last monthly issue in October 2022, we are finally making a triumphant return under an all new digital-only quarterly schedule. The magazine has shifted fully online as part of the Institute’s commitment to net zero carbon emissions as well as our strategic plan to enhance our communications. With that in mind, it is important that our readers receive the best experience possible. Through our newly refreshed website, we have enhanced a number of functions to make it easier for readers to search for specific topics or bookmark stories for your enjoyment later, among many other quality-of-life improvements. Of course, there is always room for improvement. A Plus has been the Institute’s official magazine for almost 20 years, and has gone through multiple iterations and revamps to keep with the times. I encourage you to explore the website, and welcome you all to utilize the form at the bottom of the website to let us know your thoughts on the latest refresh. As we enter the Year of the Rabbit and step into our 50th anniversary, I feel very optimistic for the Institute and our members. You can read all about my thoughts on the current state of the Institute and the professions in my interview on page 22. In short, I believe that in our redefined role, the Institute is on track to achieving its strategic goals and will play an even bigger role supporting members throughout their professional lives. In the interview I also talk about what I consider to be the new era of the accounting profession – “Accounting²”. One of the important roles the Institute has retained, is as an advocate for a better future for Hong Kong and improvements to the business environment. Just before the Chinese New Year break, we held a media briefing on our budget submission for 2023-24. Under the theme “Reconnect and Renew,” the submission includes a range of measures under three main headings: 1) Reinforcing Hong Kong’s international status and competitiveness; 2) Making Hong Kong a more liveable city and community measures; and 3) Measures to help achieve carbon neutrality and sustainability goal. You will find a summary of the submission in this issue on page 34 and the press release on the Institute’s website. There will also be a budget response after the financial secretary delivers his budget next month, so stay tuned to our communications. The Institute’s 50th anniversary celebrations will be announced fairly soon. I encourage you to keep an eye on our communications in the coming months, and seize opportunities to participate in the Institute’s events. They will surely be joyous occasions to share with colleagues and friends.
CONTENTS Issue 01 Volume 19 January 2023 NEWS 01 President’s message 04 Institute news 07 Business news FEATURES 08 A kaleidoscope of views Winners of the Best Corporate Governance and ESG Awards 2022 share their experience of increasing board diversity 14 Stepping up The new skills and experience chief financial officers need in order to transition to chief executive officer 22 Leadership profile: Loretta Fong The Institute’s President on how the Institute will support the profession in its redefined role SHORT PROFILES 30 Q&A with a PAIB Brion Shum, Director of Treasury and Finance Department for ABC International Holdings Limited 31 Q&A with a PAIP Sky Yuen, Director, Technical and Regulatory at Baker Tilly Hong Kong 38 Young member of the month Amy Chan, Senior Accountant at Shangri-La Asia Limited COLUMNS 21 Thought leadership: Laura Leka The Principal at the International Federation of Accountants’ thought leadership team on effective board oversight of sustainability and ESG 28 Second opinions Is embracing sustainability and green finance an option or prerequisite for CPAs? 40 Meet the speaker Grace Hui, Convenor of the Institute’s Greenwash Prevention Working Group, moderates an e-Seminar on preventing greenwashing 14 How the breadth of the chief financial officer role today means CFOs already have many of the skills and qualities needed to be chief executive officer 30 Q&A with a PAIB 31 Q&A with a PAIP Stepping up
DRIVING BUSINESS SUCCESS About our name A Plus stands for Accounting Plus. It represents a profession that is rich in career options, stays relevant amid rapid changes, and adds value to business. This magazine strives to present the global mindset and varied expertise of Institute members – Accountants Plus. Editor Gerry Ho Email: gerry.ho@mandl.asia Managing Editor Jemelyn Yadao Associate Editor Nicky Burridge Registered Office 2/FWang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong Advertising enquiries Advertising Director Derek Tsang Email: derektsang@mandl.asia ISSN 1815-3380 President Loretta Fong Vice Presidents Roy Leung Edward Au Chief Executive and Registrar Margaret W. S. Chan Director of Corporate Communications Dr Wendy Lam Publication Manager Michael Wong Editorial Coordinator Maggie Tam Office Address 37/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Tel: (852) 2287-7228 Fax: (852) 2865-6603 Member and Student Services Counter 27/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Website: www.hkicpa.org.hk Email: hkicpa@hkicpa.org.hk SOURCE 32 Refresher on CPD requirements A n overview of the continuing professional development requirements for Institute members 34 Reconnect and renew: a summary of the Institute’s budget recommendations T he Institute’s recommendations for the 2023-24 Budget 36 Technical news 38 Young member of the month A Plus is the official magazine of the Hong Kong Institute of Certified Public Accountants. The Institute retains copyright in all material published in the magazine. No part of this magazine may be reproduced without the permission of the Institute. The views expressed in the magazine are not necessarily shared by the Institute or the publisher. The Institute, the publisher and authors accept no responsibilities for loss resulting from any person acting, or refraining from acting, because of views expressed or advertisements appearing in the magazine. ©Hong Kong Institute of Certified Public Accountants January 2023. The digital version is distributed to all 47,927 members, 14,266 students of the Institute and 2,358 business stakeholders every quarterly. 08 A kaleidoscope of views A look at the different elements of board diversity and how companies can improve in this area
The Hong Kong Institute of CPAs released its proposals for the government’s 2023-24 Budget earlier this month. The proposals include a range of measures to reinforce Hong Kong’s international status and competitiveness, to make Hong Kong a more livable city, and to achieve carbon neutrality and sustainability goals. The recommendations call on the government to provide specific incentives and concessions for international businesses and individuals, roll out targeted support measures to businesses and citizens to help overcome the challenges pending a stronger economic recovery, while also taking necessary steps to enable Hong Kong to achieve carbon neutrality by 2050. The Institute estimates that the fiscal deficit for 2022-23 will reach HK$113.9 billion, slightly more than double the government’s original forecast of HK$56.3 billion at the time of last year’s budget. It comes as a result of lower land sales in 2022-23, and a weak economy following the fifth wave of the pandemic in 2022. “We expect that Hong Kong will continue to face various challenges in 2023 due to the global outlook, with the World Bank forecasting only 1.7 percent growth worldwide, the continuing conflict in Ukraine, high inflation affecting many economies and rising interest rates. With the projected deficit, Hong Kong’s fiscal reserves are expected to drop to HK$843.2 billion by the end of March 2023,” says Loretta Fong, Institute President. The budget proposals and the press release are available on the Institute’s website. Read the summary of our recommendations on page 34. Best Corporate Governance and ESG Awards 2022 The Best Corporate Governance and ESG Awards presentation luncheon ceremony was held on 6 December 2022. A total of 27 companies and public sector organizations were recognized in the 2022 Awards, including 10 winners of the top awards category, the Most Sustainable Companies/Organizations Awards. The full results, judges’ report and press release are available on the Institute’s website. Read the article featuring some of the awardees on page 8. Joint statement on the designation of Fellows of the HKICPA (practising) The Institute and the Accounting and Financial Reporting Council (AFRC) issued a joint statement clarifying that Fellows of the HKICPAwho hold practising certificates are eligible to continue to use the designation “Fellow of the Hong Kong Institute of Certified Public Accountants (Practising)” and initials “FCPA (practising).” The AFRC, which is the responsible authority for issuing practising certificates to CPAs, decided to maintain the status quo given the wide acceptance and recognition of the designation and the initials in the accounting profession. Annual report 2022 out now Themed “Building upon Change”, the Institute’s 2022 annual report focuses on the journey of the Institute and its members in navigating significant changes under the regulatory reform and major industry developments in Hong Kong. The photo essays feature members who are rising to meet major changes under the Institute’s redefined role and who have contributed to our various initiatives to build upon and thrive amid change. The report is available on the Institute’s website. NEWS Institute news Business news 4 January 2023 Institute announces tax policy and proposals for 2023-24 Budget (From left) Eugene Yeung, Convenor of the Budget Proposals Sub-Committee; Loretta Fong, President of the Hong Kong Institute of CPAs; and Sarah Chan, Chair of the Taxation Faculty Executive Committee.
APLUS Disciplinary findings Cheung Hing Chik, CPA Complaint: Failure or neglect to observe, maintain or otherwise apply the fundamental principle of integrity in section 110.1 A1(a) and subsections R110.2 and R111.2 under Chapter A of the Code of Ethics for Professional Accountants and the fundamental principle of professional behaviour in section 110.1 A1(e) and subsections R110.2 and R115.1 of the Code issued by the Institute, and being guilty of professional misconduct. Cheung carried on his practice both as the sole proprietor of C&N Certified Public Accountants (C&N CPA) and as one of the two practising directors of Charles H.C. Cheung &CPA Limited (CHCC). In February 2021, he filed an annual return (return) with the Institute for the renewal of his membership and for the issuance of a practising certificate (PC), for the year of 2021. In the return, Cheung declared that he was not a bankrupt, nor had he become bankrupt. Acting on the representations, including the aforesaid declarationmade by Cheung in the return, his membership was renewed and a PCwas issued to him. It was subsequently discovered that a bankruptcy order (BO) was issued against Cheung by the High Court in August 2020. Although Cheung had applied to rescind the BO, his application was dismissed in September 2020. Cheung’s appeal against the said dismissal was also rejected by the Court of Appeal in July 2021. Cheung’s leave to appeal to the Court of Final Appeal was also refused in November 2021. Having discovered the BO, the Institute cancelled Cheung’s PC in May 2021. As a result, C&N CPAwas removed from the Institute’s registration of firms, and CHCCwas subsequently changed to a solepractisingmember corporate practice. Decisions and reasons: The Disciplinary Committee found that Cheung had falsely declared to the Institute that he was not a bankrupt nor had he become bankrupt when he renewed his PC for the year 2021 and had failed to resign as a director of CHCC in accordance with the requirements of the Companies Ordinance when he had become bankrupt. Cheung admitted to the complaint against him. The committee found that Cheung had been guilty of professional misconduct. The committee reprimanded Cheung and ordered that the name of Cheung be removed from the register of CPAs for 18months with effect from 3 February 2023. In addition, he was ordered to pay costs of the disciplinary proceedings of HK$55,630.50. Tang Chung Wah CPA (practising) and Lee Fung Ying, Alison CPA Complaint: Failure or neglect to observe, maintain or otherwise apply sections 100.5(e) and 150.1 of the Code of Ethics for Professional Accountants, and guilty of professional misconduct and dishonourable conduct. The respondents were joint and several liquidators of a private company. At the relevant time, they were also partners of a firm of CPAs that was later de-registered. In 2015, court orders were issued requiring the respondents to produce certain documents pertaining to the liquidation. Following the respondents’ failure to comply with the orders in full, the court found themguilty of contempt of court in 2016. While the contempt was subsequently purged by the respondents, they were sentenced to pay a fine totalling HK$500,000 and a substantial portion of costs on an indemnity basis. Tang appealed against the Disciplinary Committee’s decision. On 22 September 2022, the Court of Appeal handed down its judgment dismissing Tang’s appeal. Decisions and reasons: The respondents were reprimanded and ordered to each pay a penalty of HK$50,000, and jointly and severally pay costs of the Institute of HK$283,730. Whenmaking its decision, the committee noted that the contempt is serious and showed conduct falling far below that of a reasonable CPA. The committee also noted that the delayed production of the documents had caused irremediable prejudice to the party applying for the discovery, and that the Official Receiver had temporarily removed the respondents from all Panel A cases due to increased concern about this case. The committee further noted that while Tang was primarily responsible for not complying with the court orders, Lee had a non-delegable duty owed to the court and it could not be said that her breaches are less serious. In deciding on sanctions, the committee considered a number of mitigating factors. These included the fact that the contempt was purged and that the respondents were fined by the court, the absence of dishonesty or fraud, the respondents’ practice histories and contributions to society, andmitigating pleadings from their professional acquaintances. The committee’s negative view of the respondents’ conduct in the proceedings was reflected in the amount of costs allowed to the Institute. Details of the disciplinary findings are available on the Institute’s website. Research report: Board diversity in Hong Kong The Institute conducted a brief study on the current state of board diversity in Hong Kong, which covered over 1,800 listed companies with their financial year ending on 31 December 2021, looking at board size, number of long-serving independent directors, and diversity, in terms of gender, age and professional qualifications, in particular, accounting qualifications. The research report is available on the Institute’s website. Minutes of the 50th AGM The minutes from the Institute’s 50th annual general meeting (AGM) held on 8 December 2022 are now available. Council meeting minutes The abridged minutes from the November and December 2022 Council meetings are now available for members to read. January 2023 5
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NEWS Business The number of weeks staff of the Public Company Accounting Oversight Board (PCAOB) spent in Hong Kong examining audits conducted by KPMGHuazhen LLP and PwCHong Kong. The United States accounting watchdog on 16 December 2022 said it had full access to inspect and investigate firms in China for the first time ever, following a long-running dispute over the auditing compliance of U.S.-listed Chinese firms. The PCAOB said it identified numerous potential deficiencies and would release the inspection report this year. IFRS 17 Insurance Contracts The accounting standard which applies to companies with annual reporting periods beginning on or after 1 January 2023. “IFRS 17 provides consistent principles for all aspects of accounting for insurance contracts. It removes existing inconsistencies and enables investors, analysts and others to meaningfully compare companies and contracts,” says IASB Chair Andreas Barckow in a video. Crypto tax reporting is rapidly becoming globally coordinated, according to PwC’s Global Crypto Tax Report 2022. The four main drivers behind this are: the OECD’s Crypto-Asset Reporting Framework; updates to the Common Reporting Standard; the European Union’s Directive on Administrative Cooperation 8; and the U.S.’s Infrastructure Investment and Jobs Act. The increased focus on the taxation of the industry follows recent high-profile business model failures of crypto exchanges and hedge funds, including FTX. January 2023 7 The percentage of IFAC’s Professional Accountants in Business (PAIB) Advisory Group which see data localization and data sovereignty as a challenge and not an opportunity. This was a key takeaway from a discussion among the group of business and finance leaders during its September 2022 meeting. The summary meeting report notes that the profession has an important role in supporting accountants in data stewardship roles, and in advocating for an international approach and coordination to data governance. 2°C – Emmanuel Faber, International Sustainability Standards Board (ISSB) Chair. On 29 December 2022, the Trustees of the IFRS Foundation signed a memorandum of understanding with the Ministry of Finance of China to establish a Beijing office of the IFRS Foundation. The office staff will be focused on leading and executing the ISSB’s strategy for emerging and developing economies, acting as a hub for stakeholder engagement in Asia. The office is expected to open in mid-2023. It was previously announced that the ISSB will have a global and multi-location presence, with all regions covered. 9 77% Howmuch Deloitte in the United Kingdom has reduced its office temperatures, in a bid to cut carbon emissions and costs amid the wardriven energy crisis, according to media reports. Deloitte told its U.K. staff that its offices would now be heated to between 19 and 22 degrees Celsius as part of new energy-saving plans. Deloitte aims to reduce its carbon emissions from business travel by 50 percent per full-time employee by 2030, compared with 2019 levels. The International Federation of Accountants (IFAC) named Asmâa Resmouki as its new President in November 2022. “I am honoured to have been elected IFAC’s next president, and proud to be the organization’s first president from the Africa-Middle East Region,” Resmouki said in a statement. Asmâa Resmouki The title of an exposure draft published by the International Accounting Standards Board (IASB) proposing a temporary exception to the accounting for deferred taxes arising from the implementation of the Organization for Economic Cooperation and Development’s (OECD) Pillar Two model rules. The IASB’s proposal comes in response to concerns from its stakeholders about the potential implications of the OECD corporate tax rules when it comes to accounting for income tax in financial statements. International Tax Reform – Pillar Two Model Rules APLUS “China is the world’s second largest economy and plays a vital role in supply chains for companies around the world – making it an important jurisdiction as the ISSB develops its global baseline of sustainability disclosures for the capital markets.”
CORPORATE GOVERNANCE Board diversity A KALEIDOSCOPE OF VIEWS Winners of the Best Corporate Governance and ESG Awards 2022 share their experience of the benefits brought by board diversity and the steps companies can take to improve in this area. Nicky Burridge reports. 8 January 2023
APLUS Companies are becoming increasingly aware of the advantages of board diversity to help them thrive in a rapidly changing business environment. Embedding diversity into an organization’s culture not only improves its business performance in the short-term, but also helps to drive long-term sustainable development for the company and benefit the wider community. However, the Hong Kong Institute of CPAs’ recent research report titled Board Diversity among Listed Companies in Hong Kong, which looked at the board diversity status of 1,844 December yearended listed companies for 2021, found that many corporates in Hong Kong are lagging in this area, in terms of both gender and skills diversity at the top level. Danny Ho, Executive Director and Chief Financial Officer of Sa Sa International Holdings Limited, and an Institute member, believes a board with a breadth of perspectives is a key driver of effective corporate governance. He adds that it also helps ensure management practices and policies remain relevant in changing times. “A diverse board brings multiple perspectives, and a wide range of skillsets and experiences, which are essential enablers when a company explores new market opportunities, evaluates risks, analyses business challenges and the potential of various geographical regions and customer segments, as well as making wellthought-out decisions,” he says. Danny Ho adds that having diversity is also conducive to enhancing board effectiveness and performance, as well as ensuring the long-term sustainable development of the company. With this in mind, Sa Sa strives to have a highly diverse board in terms of age, gender, academic background, nationality, professional experience and industry experience. Patrick Ho, Deputy Head, Sustainable Development at Swire Properties, thinks having a diverse board helps ensure decisions are made more effectively by reducing the risk of “groupthink”. He adds that bringing in board members with expertise in sustainability and environmental, social and governance (ESG) factors also helps to generate value for the company, as well as wider society and the environment. Robin Healy, Director, Company Secretariat at Link REIT, agrees. “Companies form an integral part of society, and more diverse boards provide for enhanced exchange and dialogue. No company will be able to lead in sustainable development with a board lacking in diversity,” he says. Having a diverse management team enables companies to think broadly, making them better placed to consider the longterm sustainable success of the organization, while also ensuring it makes a positive impact, according to Michael Ling, Joint Company Secretary at CLP Holdings. He adds: “Our commitment to high standards of corporate governance adds value to the business, and ensures sustainability is wellembedded into our corporate thinking and management. Board diversity is an essential element contributing to the good governance and ultimately, the sustainable development of CLP.” Ben Ng, Chairman and Executive Director of Baguio Green Group Limited and an Institute member, points out that having a diversified board not only enables the company to access a wider talent pool, but also ensures different ideas, new angles, wider perspectives, opposing views and challenges are considered before making a decision. “It enhances the company’s insight, improves corporate governance and optimizes the decision-making process,” he says. But Ng adds that having a diverse board can potentially lead to more conflict, and it may also take more time for the board to reach a decision. Gender diversity Having women on boards is an important element of board diversity. “Having well-balanced gender diversity ensures the talent and perspectives of both females and males are well represented, and this can help boost decision-making quality and avoid blind spots,” says Patrick Ho. Ng adds: “Different genders have different approaches and considerations for different situations and problems, giving wider perspectives for decision making. Women account for 37.5 percent of Baguio’s board of directors. Having a diverse board enhances the company’s reputation through promoting gender equality.” Danny Ho points out that 50 percent of Sa Sa’s board members are women, explaining: “We operate in the beauty industry where female consumers make up “ No company will be able to lead in sustainable development with a board lacking in diversity.” January 2023 9
CORPORATE GOVERNANCE Board diversity an essential part of our customer base. We believe insights from women are important, and women with the necessary skillsets will be valuable board members.” But the Institute’s research found that while around 70 percent of companies had at least one female member on their board, overall women accounted for just 14.3 percent of board members at companies covered by the research – significantly below the international benchmark of 30 percent. Healy expects recent changes to the Hong Kong Listing Rules to help address this gender imbalance, but he adds that a concerted effort from business leaders will be required to ensure Hong Kong’s board diversity follows the globally leading business practices it demonstrates in other areas. At CLP, more than 30 percent of directors are women, but Ling thinks across Hong Kong as a whole, the female representation and voice has yet to be truly valued by organizations. “I personally believe that male allies, under which male colleagues at a relatively senior level within an organization champion the cause of gender diversity, would help improve the situation. Director search consultants also now have a rich pool of female director candidates, so do tap into these,” he says. A range of perspectives Gender is only one element of the board diversity needed to help companies maximize their performance, with Healy pointing out that diversity in terms of age, ethnicity and skillset are all also important. “For diversity to add value, boards need to attract those who think differently, contrarians who can challenge groupthink. Companies that cannot innovate and change, inevitably fail. When populating the board, companies, therefore, need to hire directors who can run the company of today and also the divergent thinkers who can create the company of tomorrow,” he explains. Patrick Ho says when deciding on appointments to its board, it is Swire Properties’ policy to consider gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge, length of service and the legitimate interests of the company’s principal shareholders. Professional diversity is also key to having an effective board, according to Danny Ho. “At Sa Sa, our board has included members with different professional backgrounds, such as retail, finance and accounting, law, brand management and development, marketing, talent management, ESG, and technology, enabling diversity of thoughts for fostering fresh ideas.” Ng adds that as the direction of Baguio moves towards technology and digitization, its board includes members with a profound knowledge of information technology. Healy thinks it is also beneficial for boards to include professional accountants. “The skills of a qualified accountant are at the heart of every successful business. This goes beyond the traditional notions of numerical f luency to an understanding of the role of a director as it pertains to risk, control and good governance. The old adage of an accountancy qualification being one of the best apprenticeships in business holds true today.” Danny Ho agrees: “Qualified accountants are able to understand the ramifications of business decisions on a multitude of angles, be it profit and loss, financial position, cash f low, controls, risk, compliance and data management, and hence are very well placed to act as caretakers of the company.” He adds that extending the role beyond independent non-executive directors (INEDs) or non-executive “ Having well-balanced gender diversity ensures the talent and perspectives of both females and males are well represented, and this can help boost decision-making quality and avoid blind spots.” 10 January 2023
APLUS directors enables the qualified accountant to be involved in the daily operation and strategic planning of the business and follow through on matters identified and discussed at the board. Ling agrees on the value of involving qualified accountants on boards, adding that many of CLP’s INEDs have professional accounting qualifications. “Given the increasing complexity of financial and sustainability reporting, it is important that our board members have accounting knowledge, so that they can inform the company of the latest standards and what they entail,” he says. At Baguio, two of the company’s executive directors are Institute members. Ng points out that as laws and regulations change, qualified accountants can obtain relevant updates through their professional channels, such as the Institute. “They can also assist with the introduction and translation of relevant detailed professional guidelines, such as professional terms, into simple steps for the company’s internal operations,” he says. But despite these benefits, the Institute’s research found that around 20 percent of companies have a qualified accountant on their board who is an executive director, and among the 321 companies which do not have board members who were qualified accountants, only 24 percent of CFOs/finance directors held the qualification. Previously, the Listing Rules, for both the Main Board and the Growth Enterprise Market, required companies to have a qualified accountant as a member of the senior management and preferably on the board. However, this requirement was removed in 2009. Improving diversity For companies looking to increase their board diversity, Danny Ho suggests establishing a board diversity policy setting out the framework for achieving board diversity in the company. “It is a good practice to review the policy periodically to ensure it remains relevant to the company’s needs and ref lects both regulatory requirements and good corporate governance practices,” he says. When it comes to gender “ Qualifiedaccountants are able to understand the ramifications of business decisions on a multitude of angles... and hence are very well placed to act as caretakers of the company.” January 2023 11
CORPORATE GOVERNANCE Board diversity diversity, he adds that companies should also take a longer-term approach and invest in building a steady pipeline of female candidates who are ready to compete for board seats. “Diversity does not start with or end with the board. Diversity and equal opportunity, run through the fabric of Sa Sa and exist at core management team level and below,” Danny Ho says. Ng suggests a good starting point is creating a board culture that respects different views and ideas, encourages open discussion and honest feedback, and is openminded to accept others with different views. “The company also needs to set medium- and long-term development directions and goals in order to maximize the effectiveness of corporate governance,” he says. Healy suggests companies start by looking at board strategy. “Their strategic objectives will likely create impetus for increasing board diversity, and importantly that of your talent pool.” He adds that to increase diversity, companies may need to look beyond the traditional director searching grounds of 12 January 2023
APLUS While around 70 percent of companies had at least one female member on their board, overall women accounted for just 14.3 percent of board members at companies – significantly below the international benchmark of 30 percent, according to the Institute’s board diversity research report. The report looked at the board diversity status of 1,844 December year-ended listed companies for 2021. former CEO and CFOs, and think about skillsets and the potential to add value in a more holistic manner. Ling agrees, pointing out that when looking for new board members, current directors often tap into their own networks, which tend to be made up of people with a similar background. He also stresses that there are various aspects to board diversity, from gender, nationality, age, length of service and capacity. “In seeking to build a diverse board, do look for what value a prospective director can bring to the board and the organization, rather than bringing on a director just to make the board look more diverse,” he says. Recognizing success The Institute recognizes companies with the highest standards of corporate governance through its annual awards, which were in 2021 renamed the Best Corporate Governance and ESG Awards to ref lect the growing importance of ESG. The awards also recognize the companies and organizations that have achieved outstanding performances in both corporate governance and ESG through the Most Sustainable Companies/Organizations (MSCO) Awards. Swire Properties is an awardee of the ESG Awards in the nonHang Seng Index (Large Market Capitalization) category. Patrick Ho says the award not only underlines the commitments which Swire Properties has made to implementing its Sustainable Development 2030 Strategy but is also confirmation that it is on the right track. “This motivates us to do more to achieve even greater positive sustainability impact for the company, and for the society and the environment,” he says. Danny Ho says receiving one of the awards recognizes and reaffirms Sa Sa’s continuous efforts in maintaining high standard of corporate governance. It was given a special mention in the Corporate Governance Awards in the non-Hang Seng Index (Small Market Capitalization) category. “It is a great privilege, and we are thankful for this acknowledgement of our ongoing efforts in strengthening our corporate governance practices.” Baguio, a new awardee, received a Commendation on Progress in ESG Practices in the Self-Nomination Awards. “It is the driving force for the company to continue to promote sustainable development. The company stands out in the industry in terms of corporate governance and ESG,” says Ng. Link REIT is a winner of the MSCO awards, receiving a gold award in the Hang Seng Index category. For Healy, the award is a validation of all of the hard work and effort of not only the Link board but also the entire organization. “It is also important to recognize the value in these awards beyond any one team or organization in that governance and ESG will be central to creating sustainable organizations for all of our futures,” he says. CLP is also an MSCO awardee, winning a platinum award in the Hang Seng Index category. Ling says CLP is “honoured and humbled” to receive one of the awards. “It certainly speaks to our strong commitment to corporate governance and the credit goes to my CLP colleagues who have showed strong dedication and hard work in maintaining our corporate governance standards and constantly challenging ourselves on how corporate governance could serve our organization better.” CLP places a strong emphasis on integrating ESG and corporate governance, and is one of only a few companies in Hong Kong that produces an integrated report. “At CLP, sustainability governance has been embedded in the corporate governance structure throughout the group – from board-level committees to management-level group functions and business units. A strong governance framework is key to ensuring that the ESG issues CLP faces are incorporated into the corporate agenda,” Ling says. He adds that a key principle behind the company’s integrated reporting is the value creation process and how that story is told to investors and stakeholders. Ling says: “To articulate the value creation process for CLP, there are a number of important and inextricably linked parts and these start with purpose, corporate strategy, and how the strategy is, or can be delivered while managing our ESG issues, and the role that ‘G’ (corporate governance) plays in facilitating management to deliver the desired strategic outcomes, financial performance and positive impacts or minimizing the negative impacts on the areas of ‘E’ and ‘S’.” “ Do look for what value a prospective director can bring to the board and the organization, rather than bringing on a director just to make the board look more diverse.” January 2023 13
CAREER DEVELOPMENT CFO to CEO The number of chief financial officers making the transition to chief executive officer is on the rise. In the first half of 2022, 8.1 percent of CFOs at some of the largest companies in the United States were promoted to the top role, up from 5.6 percent a decade earlier, according to executive search company Crist Kolder Associates. The breadth of the CFO role today means CFOs already have many of the skills and qualities they need to be considered for the top job. But there is still additional experience they need to acquire in order to make the leap to CEO, while a mindset shift is also required to thrive in the top role. Seize opportunities Danny Ho, Executive Director and CFO at Sa Sa International Holdings Limited, and a Hong Kong Institute of CPAs member, thinks being prepared to seize opportunities is key in order to make the transition from CFO to the top job. He started his career with an audit firm in the United Kingdom, before moving to KPMG in Hong Kong. After working as KPMG’s audit partner for Cathay Pacific, he was keen to be involved at an operational level, and moved into the business sector. He took up a role with Diageo Plc, a multinational alcoholic beverage company, initially as its China lead for global audit and risk, and later as Asia-Pacific finance director. With their strong analytical skills and business sense, chief financial officers are prime candidates for future chief executive officers. Nicky Burridge talks to business leaders about what helped them successfully transition from a finance role to a more strategic one, and the strengths CFOs bring to the CEO position Illustrations by Gianfranco Bonadies 14 January 2023
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CAREER DEVELOPMENT CFO to CEO During this time, he was offered the opportunity to oversee the transformation at Diageo’s China white spirits subsidiary, Sichuan Swellfun Co. Ltd., which is listed on the Shanghai Stock Exchange. “This was at an extreme low point for the industry following the government’s clamp down on corruption, which had led to sales dropping 70 percent overnight. Luck favours the brave and I found at my core, I like to take on the sort of challenge others might not,” Ho remembers. After six months, he had helped to steer the company towards profit, and transitioned to the CFO role and was appointed to the board, looking after finance, strategy, technology, digital transformation, supply, investor relations, internal audit and human resources. Next, he took up a CFO/ business development role for UMP Healthcare China, followed by being CFO for Hong Konglisted UMP Healthcare Holdings Limited, before being approached 16 January 2023
APLUS by Sa Sa International Holdings for the role of co-CFO. While Ho is not a CEO, he was appointed an Executive Director with effect from 30 June 2022, and therefore accountable for the long-term success of the company. Gerald Yu, CEO of digital payment processor BBMSL Limited and Institute member, agrees that seizing opportunities is important. He points out that he was given the opportunity to become CEO of BBMSL when its holding company was sold to Stripe. “To make the leap from CFO to CEO, you also need to have some sort of luck and grab the opportunities presented to you,” he says. Gain management experience Yu also focused on gaining management experience. He started his career as an auditor, before making the transition into the corporate sector. In 2000, he became CFO of Panva Gas Holdings, which was later acquired by Towngas Limited. Yu then held CFO roles at a number of different companies before joining BBMSL. Yu points out that obtaining management experience in areas other than the financials of a company, such as its strategic direction, was key for him in making the transition to CEO. This was difficult to do when he worked for Towngas, as the strategy was dictated by the holding company. “If you work for a smaller company, you have more opportunities to participate in active management. Without this exposure, it’s very difficult to jump from CFO to CEO,” he says. Vincent Liew, CEO and CFO at hospitality management group HMG & Proventus Group, attributes his success in making the transition to the top job to consciously making an effort while he was working as an auditor at EY to not only understand the commercial aspect of a company’s operations, but also the “why and what” involved in the decisions taken by the management of multinational corporations. “To leap from CFO to CEO, I sought to augment my financial expertise with operational experience,” he says. Liew achieved this when he joined Mercedes-Benz AG as head of business management – finance. He managed the whole retail dealership network’s profitability enhancement programme in Greater China, helping to drive significant year-on-year growth. “Deloitte in Sydney saw this and asked me to join them as CEO for their Asia retail division.” Think like a CEO Jennifer Tan, Chief Executive of Alipay Financial Services (HK) Limited and Institute member, attributes her success in moving from CFO to CEO to acquiring a deep knowledge of the telecoms industry. After working as an auditor at an international accounting firm, and in a finance function at a Fortune 500 consumer goods company, she moved to Hutchison Telecommunications, where she worked her way up to finance director. She thought she would hold this role until she retired, but she was asked by the CEO to become managing director of the company’s fixed line business. After two years in this role, she was promoted to chief operating officer of the fixed line and mobile business. Always striving to find new ways to bring additional value to customers, Tan oversaw the introduction of e-wallet service Alipay HK, through a joint venture between Hutchison and Ant Financial. The initiative led to the creation of Alipay Financial Services (HK) Limited, with Tan appointed as the founding CEO. Tan thinks one of the biggest strengths CFOs bring to the CEO role is understanding the stories behind the numbers on the balance sheet. “Our training helps us very easily analyse and identify relationships between the numbers. When I first became a managing director, I could easily point out to senior management what the key revenue and cost drivers were and explain why I had laid down that business plan.” She adds that because CFOs support CEOs in running the business, they already have a more holistic view of operations than those in other C-suite functions. Ho agrees that CFOs’ strong grasp of numbers enables them to understand the impact of decisions on the financials. “My finance background enables me to instantly understand the ramifications of business decisions from a multitude of angles, be it profit and loss, the financial position, cash flow, internal controls, or risk,” he says. Ho adds that CPAs are well trained in controls and compliance, tend to be risk adverse, and knowledgeable of listing requirements. “This knowledge and understanding of the board members also enables me to act “ One of the biggest strengths CFOs bring to the CEO role is understanding the stories behind the numbers on the balance sheet.” A report by Spencer Stuart, an American global executive search consulting company, notes that “on average, [promoted CFOs] achieve higher levels of profitability during their early CEO years yet lag their peers in top-line growth... promoted CFOs need to equally lean into the less familiar: driving growth.” The report, released in July 2022, studied more than 1,300 CEO transitions to predict the probability of success in the top job based on a CEO’s last role. January 2023 17
CAREER DEVELOPMENT CFO to CEO as the bridge between the senior management team and the board, deciphering the multitude of business decisions that are taken to those matters relevant for the board, and likewise translate the board’s requests into actionable items for the senior management team,” he says. Yu points out that the ability of CPAs to read financial statements helps with the planning of the strategic direction, budgeting decisions and the valuation of the company, which are essential in fundraising exercises. Liew says that while a good CFO reports on a company’s financials and key performance indicators in an accurate and timely manner, a better CFO takes charge of managing change in the company, and articulating the why and how for improving shareholder value. Acquiring these skills, he adds, sets up finance heads to become CEOs. Beyond the numbers Despite being well-versed in the finance side of things, many CFOs still need to acquire new skills and experience in order to make the transition to CEO. Ho says despite this training, a mindset shift was still required when he became a CEO. “Most of the issues we deal with as CFOs have a set formula to identify the solution. However, as a CEO managing the business, you must be able to deal with ambiguity, make decisions when not all the data and analysis is available, trust your judgement and take measured risks,” he says. Ho adds that for him, the biggest challenge was changing his focus from risk to opportunity. Liew agrees, pointing out that CFOs are trained to be prudent, which can lead to them being overcautious. By contrast, CEOs must make bold and calculated decisions quickly. “I always adopt the strategy that no CEO can make the correct decisions all the time, but not making any decision is definitely incorrect. That is to say, a bad decision is better than no decision,” he says. Yu points out that CEOs also need to be more strategic than CFOs. “They need to have a vision for the company in five to 10 years’ time, and get the management team to buy into that vision and perform their roles to achieve that goal,” he says. Yu further points out that they also need to have more of an entrepreneurial mindset. “Being an accountant, you do your calculations and look at different scenarios, and probably plan for the worst-case scenario, but to be a CEO, you need a good balance between being an entrepreneur and being an accountant.” Yu also found that he needed to change his management style to run the company as a team, pointing out that to make the transition successfully, CFOs need good people management skills. For Tan, the biggest challenges were also building up management skills and an understanding of different areas of the business, including sales, marketing, human resources and technology. “The management style for a CEO is very different to that of a CFO, as you need to motivate and manage people across different functions and drive them to achieve a common goal,” she says. Tan adds that CEOs also need much deeper industry knowledge than CFOs, for example in e-payments, this includes understanding the technical side of the business and industry trends. Making the transition Many of those who have made the transition from CFO to CEO had completed a master of business administration (MBA) at some point during their career before taking on the top role. Yu took a year off to complete an MBA, after which he gained a position with a listed company. Meanwhile, Ho says the programme not only helped him to understand business models and opportunities, and routes to the consumer better, but it also exposed him to people from different backgrounds and industries, including entrepreneurs. He adds that the timing of taking an MBA programme to coincide with actual experience, is as critical as the course itself. Tan also thinks having an MBA is valuable. “An MBA will not make you a CEO, but it will help you to step out from your CFO role, as you will learn to see things from a different angle.” Yu says continuing education, whether it’s through doing an MBA, or reading books, or attending short courses, is important to gain a good understanding of the non-financial aspects of running a company. He also advises Institute members who want to make the transition to work for smaller companies to “ Most of the issues we deal with as CFOs have a set formula to identify the solution. However, as a CEO managing the business, you must be able to deal with ambiguity, make decisions when not all the data and analysis is available, trust your judgement and take measured risks.” 18 January 2023
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