One jurisdiction, two regimes?' : a socio-legal perspective on how directors of Chinese family companies in Hong Kong should be regulated

Abstract

This thesis argues that Hong Kong should establish a pluralistic regime to regulate directors, because amending the law cannot resolve the gap in regulation created by the incongruity between the law of directors' duties, and the values that underpin the governance practices in Chinese family companies. This research is important for the reason that unless this incongruence is dealt with, experiences have suggested that governance and related problems in Chinese family companies could escalate into wind up action. Furthermore, this gap in regulation could affect more than half a million companies in Hong Kong. At present, the law of directors' duties in Hong Kong is essentially British, introduced during the colonial administration over a century ago. The legal obligations are fiduciary in nature. To date, amendments to the law of directors' duties in Hong Kong are limited to discussions about codification along the lines of the British law reforms. And after two decades the government was finally able to achieve some consensus amongst the business and professional elites in Hong Kong to codify directors' duty of care. However, fiduciary duties remained general law obligations. British laws continue to be used as benchmarks for Hong Kong's corporate governance regulation in order to encourage international investments into the Territory's equity markets. Whilst it is appropriate for publicly listed and non-family companies, it is ill suited for Chinese family companies, because in these companies, the underlying values of governance focus on the control of the family company by the family patriarch, and on maintaining harmonious relationships amongst family members. These values and norms emanate from Confucian doctrines that have been embedded in the Chinese psyche for centuries. In sum, there appears to be one set of formal legal rules and another informal normdriven value based normative ordering regulating directors in Hong Kong. However, without a regulatory framework, compliance with the informal normative ordering is capricious. To resolve this, nodal governance theory proposes that networks are well suited to be organised as a self-regulatory node or body. Since Hong Kong's economy is built on networks of family companies, they can be effectively mobilised as a self-regulatory node or body to fill the current gap in the territory's corporate governance regulatory regime. The proposed Chinese self-regulatory node or body should deal with conflicts in Chinese family companies, because without a forum to address grievances they could escalate to the point of fen jia (division of assets leading to liquidation). Thus, culturally appropriate intervention and assistance is vital to find solutions to company disputes. Given that paternalism and harmonious relationships underpin the governance of Chinese family companies in Hong Kong, they are central to the regulatory proposal. However, these Confucian enthused values could not be regulated through legal rules. Instead, it is through persuasion and compromises that they are applied to bring about a mediated resolution. Since governmental recognition and judicial practice direction on mediation in Hong Kong is already in place, the mediated outcomes by a Chinese self-regulatory node or body could be deemed by the courts to be an alternative dispute resolution procedure to settle disputes concerning the governance of Chinese family companies. Lastly, even though this reform proposal is conceptual and more research needs to be done, the recommendations of this thesis are aimed at addressing a long neglected area of corporate governance regulation in Hong Kong.

Date of Award	2013
Original language	English