Legislative Council Meeting Members’ Motions: Restructuring the governance of MTR Corporation Limited

Restructuring the governance of MTR Corporation Limited

MR CHAN CHUN-YING (in Cantonese):

President, the exposure of quality problems with a number of works projects of the MTR Corporation Limited (“MTRCL”), coupled with the recent failures of its signalling systems, have aroused widespread concern in the community. With regard to the motion on “Restructuring the governance of MTR Corporation Limited” today, I would like to draw on my own personal experience as well as professional know-how to provide a few comments for consideration by the Government and MTRCL.

First, the function of the board of directors. Earlier, MTRCL admitted after a special board meeting that its existing reporting mechanism was flawed. It then decided to instruct the Capital Works Committee under the board to review the management processes and procedures of the Shatin to Central Link. The Capital Works Committee, which oversees capital works with a value of $10 billion or above, clearly does not have a duty in supervising the performance of the company’s management. There are now seven committees under the MTRCL board. From a corporate governance perspective, all committees within the board level should be responsible for supervising management performance in their respective areas, and the performance in a relevant area should even be made a part of the overall appraisal coverage for the corporation.

Capital works are not a major business area of MTRCL. However, in view of the fact that the company is often entrusted by the Government with the construction of large-scale railway projects, its Capital Works Committee should also be properly authorized to supervise management performance in capital works. Separately, as the largest stakeholder of MTRCL, the Government has appointed public officers as the company’s non-executive directors―there are four, according to the information provided by the Secretary just now. However, judging from the recent spate of incidents, these non-executive directors seemed to have failed to exercise their supervisory roles properly. The reasons behind were the already hectic and taxing schedules of these public officers which have prevented them from spending a substantial amount of time and energy on supervising MTRCL, or that the officers have yet to fully grasp the responsibilities as government-appointed directors? I have put forth this view in the Chief Executive Question and Answer Session and hope the Government will ponder and review the situation.

Secondly, the division of work between the Chairman and the Chief Executive Officer. Generally speaking, the board of directors of a public company will appoint two persons to be the Chairman and Chief Executive Officer respectively so as to avoid excessive concentration of power. The division of work between them is clear: the Chairman is responsible for ensuring the proper performance of functions of the board in compliance with good corporate governance practices and procedures, while the Chief Executive Officer is responsible for leading the management and implementing important strategies adopted by the board.

Mr TIEN’s motion asked the Government to consider appointing a Chairman or Chief Executive Officer with an engineering background in the long run. I have reservations about this view. The chairman of the board is responsible for the strategic direction of the organization. As MTRCL is primarily a provider of mass transit service, its Chairman should specialize in strategies for transit service. And given the wide-ranging business scope of MTRCL, identifying a suitable candidate will be its next problem if the Chief Executive Officer is required to process professional backgrounds in all the business areas it involves.

Thirdly, performance appraisal. Each corporation has a set of key performance indicator (“KPI”) for appraising management performance. I am not sure if the quality of capital works is included as one of the KPIs in MTRCL. If not, I hope the government-appointed directors can suggest to the board making capital works quality one of the KPIs of MTRCL management. Whenever MTRCL adjusts its fares, I always hear many voices in the community questioning the yearly fare hike in view of a spate of service disruptions in recent years.

Therefore, President, to address public concern about the capital works quality of MTRCL, I suggest including capital works quality as a consideration factor in MTRCL’s application for fare adjustment, so as to encourage it to take the quality problems in capital works and maintenance seriously.

Fourthly, internal reporting. To meet the requirements laid down in the Code on Corporate Governance Practices, all listed companies will formulate “Policy on Staff Reporting of Irregularities” to assure their staff of the appropriateness of internal reporting and that of the management mechanism. Staff can report to the auditing unit or to the chairman of the audit committee directly. Alternatively, they can even choose to report anonymously and let the audit unit conduct independent investigation into the reported incident and make recommendation with regard to the issues involved, in addition to reporting the investigation results to the audit committee and to the management.

MTRCL also mentions its whistle-blowing policy in its annual report. But the scope of this policy only covers concerns which have or could have significant adverse financial, legal or reputational impacts on the company. The policy applies to all staff, parties who deal with the company and the general public. I am not sure whether, up to the present moment, there is any reporting of quality problems with capital works by a whistle-blower. But I hope that after this incident, MTRCL will encourage stakeholders to make use of the existing mechanism to report quality problems with capital works, with a view to put Hong Kong people at ease when travelling with MTR.

MTRCL is a quality company which has all along been functioning properly, earning worldwide reputation for Hong Kong’s railway system. But a series of blunders in capital works have somehow shaken people’s confidence in the company. I believe that the government-appointed directors should strengthen the management of MTRCL with targeted measures, so as to restore people’s confidence.

As a matter of fact, I agree in part with Mr TIEN’s motion and the amendments proposed by some Members, but I cannot agree with certain contents in them. For instance, while we are discussing the governance of MTRCL, points (1) and (2) in the original motion are requests made to the Government instead of MTRCL, and point (3) is not a corporate governance issue. And as I have said earlier, I do not agree with the appointment requirements in respect of the Chief Executive Officer and the Chairman. I will therefore abstain from voting. As for the suggestion of buying back the shares of MTRCL, it is definitely infeasible and I will vote against it.

I so submit. Thank you, President.