As Chairman of the Financial Reporting Council (FRC) in Hong Kong, Dr. Kelvin Wong is tasked with a critical mission of overseeing key regulatory matters in the finance hub. As the FRC prepares itself to become an independent financial regulator of PIE auditors, the Chairman recently told Hong Kong Lawyer about his vision for the organisation, its expanded remit under the new regime and the pathway that had led him here.
While Dr. Wong’s early career path may not be an obvious pathway to his current role, his enthusiasm and desire to learn has enabled him to gain a varied background and many impressive titles. After initially spending a number of years working in banks, Dr. Wong stepped into a position as a research analyst. After holding this position for around five years, Dr. Wong was ready for another change, going on to work for listed companies.
This further sparked his business interests, and in 1992, he made the decision to explore these within an academic setting, choosing to spend a year undertaking a Master of Businesses Administration in Michigan.
“Because I was so interested in strategy and businesses acquisition, I believed that further study would allow me to excel myself to a higher level,” he tells Hong Kong Lawyer, noting that in 2001 he then decided to undertake a part-time PhD programme at the Hong Kong Polytechnic University.
“My thesis was about the difference in corporate governance between family firms and non-family firms before and after financial crisis. You must understand that in Asia, and particularly in Hong Kong, listed companies are predominantly family-owned or state-owned. This gives corporate governance a very different way of expressing itself when compared to its U.S. counterparts,” Dr. Wong explains, noting this also has ramifications when it comes to enforcement and regulatory matters.
“In the U.S. or Europe, listed companies are by and large quite dispersed in terms of shareholder concentration, and therefore regulators always focus on how to ensure proper check and balance is in place for the all mighty CEO of a listed company,” he says.
“They always focus on the check and balance among the board, the non-executive chairman, and the CEO such that there is an adequate oversight of the CEO, without which, management entrenchment might be conspicuous and shareholders’ interest be compromised,” Dr. Wong says, noting this is what led him to explore these issues and challenges within an Asia context.
“I was fascinated by corporate governance in Asia, and therefore I took that PhD programme. After spending six years, I finally graduated,” he says with a sense of relief.
But while Dr. Wong may have taken his time studying, the rest of his schedule seems to always have been packed. In addition to his work and studies, Dr. Wong has also extensively committed himself to public service roles.
The Public Service Arena
“I have quite a substantial exposure regarding different types of public service,” says Dr. Wong, before breaking down his impressive track record. “I firstly started out as a committee member for the China division of the Hong Kong Trade Development Council (HKTDC),” he says, explaining that his professional background in shipping and container terminal work gave him something of an expert background.
“With my expertise in China trade, I served that committee for a few years. I also served the Hong Kong Institute of Directors, firstly as a council member, and eventually became the chairman for five years.”
This position also allowed Dr. Wong to explore his academic interests in corporate governance. “Through the work at the Hong Kong Institute of Directors, we actively promote good corporate governance among our members who include listed company directors, private company directors, senior management and professionals including auditors, lawyers, engineers and even retired judges. We also set standards regarding the expected level of governance which is good and practical for listed companies,” he says.
Dr. Wong later stepped down as Chairman after serving in this position for five years. He also served on the Listing Committee of The Stock Exchange of Hong Kong Limited for six years.
“The Listing Committee is in charge of approving IPO applications. My experience in serving this Committee allowed me to apply the listing rules in the context of my experience as a professional director and a strong advocate of good corporate governance,” says Dr. Wong, noting that he is able to draw on his background to provide helpful businesses insights.
“I served the Listing Committee for six years before moving on to serve as an independent director at the Securities and Futures Commission (SFC),” he says, before explaining that SFC is “the ultimate regulator”.
“The SFC regulates, not only the market, but also the Stock Exchange. I served there for six years. I also served on the Standing Committee for the Company Law Reform as a member, and during my term, we actually pushed forward and eventually succeeded in making amendments to the Companies Ordinance in Hong Kong,” he says.
Dr. Wong, who also served, as a committee member of the Corruption Prevention Committee of the Independent Commission Against Corruption, says that all these various roles are all consistent with his regulatory interests.
“My different roles over the past 30 years are underpinned by one word — governance. When you look at my role as an executive director of a listed company, what comes first is not only business results but a healthy governance environment with well-defined procedures and processes from which business results can be delivered,” he says.
Joining the FRC
Stepping into the position as Chairman of the FRC is something of a natural next step for Dr. Wong, bringing together a number of his interests and the desire to take the organisation to the new era of independent auditor regulatory regime. “The FRC was established at the end of 2006 under the Financial Reporting Council Ordinance and was in full operation in 2007. Then in 2008, the global financial tsunami and the collapse of Lehman Brothers came,” says Dr. Wong, noting the organisation was a well-timed addition to the Hong Kong regulatory landscape.
“Against the background of that ‘gloomy’ era, you can imagine how important it was for the FRC to become an independent regulator in charge of upholding the quality of financial reporting of listed entities in Hong Kong,” he says noting that professional and retail investors are reliant on information that is accurate. After all, lack of public trust on the quality of financial reporting could choke off the healthy development of Hong Kong as an international financial centre.
While at present, the FRC focuses on investigation, its future roles will be expanded to cover inspection, discipline and oversight of the Hong Kong Institute of Certified Public Accountants in respect of their functions for registration, standards on professional ethics and auditing and assurance; and continuing professional development requirements in relation to auditors of public listed entities (PIE auditors). As of the 1st October, there will be a number of changes rolling out to ensure that Hong Kong is on par with other international regulators.
Dr. Wong breaks down how the new auditor regulatory framework will work: “Self-regulation no longer meets the expectation of investors, because on a global basis, independent regulation and public oversight have become the norm for the protection of public interests.
Starting from 1st of October, the FRC will become the independent auditor regulator of Hong Kong. After we conduct an investigation, an investigation report will be sent internally to the Disciplinary Department, which will be led by lawyers, with the assistance of auditors, who have excellent knowledge and in-depth understanding of auditing and accounting issues. The Department will evaluate the report from a legal perspective, consult relevant experts on any contentious auditing or accounting issues, and make recommendations on the disposition of the case, including any sanctions to be imposed. Senior counsel will act as a case advisor who will give his views on the Department’s recommended disposition. There will be plenty of opportunities for the auditors concerned to be heard. All the relevant materials will then be sent to the Council for deliberations and determination,” he explains. Once the Council has made a decision, the auditors concerned will have further recourse to an independent review tribunal and then the Court of Appeal.
With the FRC’s expanding scope, the organisation is also recruiting new staff and department heads across various functions.
Leading the Way
As Chairman, Dr. Wong is tasked with a portfolio of responsibilities – both at macro and micro level. “As Chairman, my role is to ensure that the board functions effectively. I work seamlessly with the board members to set directions and strategies that are conducive to the long-term development of the FRC and the effective oversight on the management process,” he says.
The board must also consider how to build and manage the FRC’s image, “and how to achieve our objectives through systematic activities such as outreaching to our stakeholders”.
“Through the collective wisdom and contributions from our board members, we’re able to sort out how we’re going to perform our various functions effectively through our stated policies. At the management level, I spend quite a lot of my time in working together with the senior management to make sure they have enough resources going forward in order to carry out their functions efficiently,” he says.
There are also other new areas which the Board is tackling. “We are also in the process of revising our policies and procedures for the effective implementation of the new auditor regulatory regime and the performance of our expanded functions. This is very important because as an effective regulator, we have to ensure that we don’t overregulate or underregulate. Where is the benchmark then? It is certainly in our policies and procedures,” “For example, when we receive a complaint, what should we do? How and when should we reach a decision as to whether the case is pursuable or not. All these require clear procedures. After all, we are accountable to all complainants,” he says.
Guiding the Team Forward
As the FRC is pressing ahead at a time of positive change, there are challenges to overcome. “We are in the process of recruiting new staff for our expanded functions. In the near future, we’ve got to manage a group of staff, including some who have worked with us for more than ten years. Among our existing 25 staff, many of them have been working for us for over five years. They are highly experienced auditing and legal professionals.,” Dr. Wong says.
“Managing a team comprising existing and new staff presents its own challenges. We need to have the right culture in place in order to promote creativity and also innovation, while keeping current good practices. When I say creativity and innovation, I’m not suggesting we’re a technology company. What I mean is that we need to think out of the box and find some new ways of doing things that are considered to be appropriate for the development of the FRC in the light of our new functions,” he adds with a sign of abstraction.
Given these considerations, Dr. Wong says that a good workplace culture is highly important. “At the FRC, we strive to create a corporate culture that embraces openness, frankness and communication in which our staff would be able to demonstrate their leadership skill and professional knowledge and contribute their ideas, thereby discharging their responsibilities duly and effectively.
When asked to reflect over the course of his career, Dr. Wong feels that his perspective and ongoing internal reflections all tied to a motto he has carried throughout his professional career.
“Let me share my personal motto, which came from my secondary school master. She wrote it for me when I graduated. I will always remember it: Life is like a piano, but how well it is depends on how you play it,” he says. For Dr. Wong, this is doubly meaningful, given his love for music. “I like music very much – I was the past Chairman of the Hong Kong Chinese Orchestra. I also play the guitar, harmonica and erhu,” Dr. Wong says, noting that this motto is something he has reflected on regularly throughout his career.
“Life is like a piano, because we have pianos that may cost you millions and millions of dollars, or just a few thousand Hong Kong dollars. But if you are really playing from the bottom of your heart, and with good practice and discipline, you will find the beauty in the process irrespective of the type of piano,” he says.