Submission to the Financial Services and the Treasury Bureau on Consultation on Promoting Paperless Corporate Communication for Hong Kong Companies

1. The Consumer Council (the Council) is pleased to submit its views with respect to the consultation paper issued by the Financial Services and the Treasury Bureau (FSTB) on promoting paperless corporate communication for Hong Kong companies (the Consultation Paper).

2. It is noted that the proposals in the Consultation Paper will be relevant to all shareholders of Hong Kong companies.  As an advocate of consumer welfare, the Council takes interest in providing its views from the standpoint of retail investors many of whom are individuals and general consumers.  Recognising the environmental benefits of promoting paperless corporate communication as well as the potential enhancement of corporate efficiency and cost-effectiveness, the Council sets out below its (i) views on the legislative proposals regarding the implied consent mechanism, notification requirement, and related protective measures for shareholders and (ii) some other steps and measures beyond the Consultation Paper which the FSTB may take into consideration to further safeguard the interest of shareholders.

(i) Views on the Legislative Proposals

Wide scope and varying nature of corporate communications

3. The Council notes that corporate communications could be very wide in scope and of different nature.  For the purpose of this Consultation, the Council suggests classifying corporate communications into two main categories according to their nature, and clear definitions for each of the categories should be provided.  In general, corporate communications could be broadly classified into (i) general and less important corporate communications (e.g. marketing materials, notifications on minor amendments of documents or company policies, company news, etc.); and (ii) important corporate communications such as those required by law, affecting shareholder rights, or actionable corporate communications as defined in the Mainboard Listing Rules_[1]. 

Implied consent mechanism

4. The proposed implied consent mechanism is believed to be conducive to reducing paper consumption and promoting an environmental friendly business environment in Hong Kong.  Having said that, the Council takes the view that partial implementation of the proposed mechanism to general and less important corporate communications only may be more suitable from the perspective of protection of retail investors, many of whom are individuals and general consumers.  For general and less important corporate communication, the Council agrees that both listed and non-listed companies incorporated in Hong Kong can rely on implied consent for disseminating corporate communications by means of website. 

5. As for important corporate communications, considering their impact on the decision making of shareholders, the Council is of the view that companies should be required to take proactive steps to bring such communications to the attention of shareholders.  Depending on the importance of the communication, such proactive steps could range from individual and specific notification to the supply of an electronic copy of the communication to the shareholder.  For the avoidance of doubt, the suggestion should not affect a shareholder’s right to opt out of receiving a copy of the corporate communication.  From an investor protection point of view, the Council takes the view that a shareholder should be given the option to choose to receive or not to receive copies of corporate communications at the time when the share is acquired.

6. Against the above backdrop, the Council opines that a company opting to rely on implied consent should explain the new arrangement clearly on all of its existing information dissemination channels, including company website, social media platforms, etc.  In addition, the company should ensure that relevant information of the new arrangement will be easily accessible to all shareholders.  Shareholders should also be sufficiently informed of their right and the methods to choose and/or request communications in hard copy or electronic form as suggested in paragraph 12 below. 

7. Separately, the Council suggests that the Government could regularly review and evaluate the effectiveness of the proposed implied consent mechanism, and make disclosure of the progress/achievements in enhancing environmental protection during the course of the transition period.   

Cancellation of separate notification requirement

8. The Council agrees that dissemination of corporate communications by means of website will help reduce paper consumption.  Nonetheless, it is important to ensure that shareholders of both listed and non-listed companies will be properly informed of the upload of corporate communications.  The Council believes that a balance between environmental protection and upholding shareholders’ right to information is achieved under the existing CO, which requires a company to issue a notification, either in hard copy or electronically, to notify its shareholders each time when new corporate communication is made available on its website.  Regarding the cost-effectiveness of electronic notifications, while furthering the environmental protection goal, the Council suggests that the aforesaid requirement of notification should be maintained for shareholders who have provided electronic contact details.  That is, electronic notifications of the issuance of corporate communications should continue to be sent to individual shareholders who have provided contact details for electronic communication. 

9. For shareholders who have not provided electronic contact details, other paperless means of notification should be sufficiently explored and tested.  It is unclear from the Consultation Paper whether a telephone number which is able to receive SMS notifications falls within the scope of electronic contact details.  For shareholders who have not provided electronic contact details but have provided a telephone number which can receiving SMS notifications, SMS messaging could be adopted as an alternative to paper notification, since the former is widely used in Hong Kong even by people with low digital literacy.  In addition, promotion and support for the use of electronic communication should be enhanced among shareholders with low digital literacy, with an ultimate goal of these shareholders gradually transitioning to using electronic notification in the long run.

10. Separately, the News Alert service provided by the HKEX could be a complementary measure for notifying the shareholders of listed companies of the upload of corporate communications.  However, the Council noted that the service has restrictions in the sense that a user can only subscribe for a maximum of 20 listed companies.  Hence, unless and until the function and capacity of the News Alert service are enhanced, it does not appear to be an ideal channel for sending notification to shareholders of listed companies under the new implied consent mechanism. 

Safeguards to protect interest of shareholders

11. The Council agrees that sufficient safeguards should be introduced in the CO to offer statutory protection to shareholders under the implied consent mechanism.

12. Proper and sufficient notification to end-users is indispensable when a change is to be implemented.  The Council notes the proposal to require both listed and non-listed companies to issue a first-time and one-off notification to shareholders individually in hard copy or electronically regarding the proposal of electronic dissemination of corporate communications by means of website.  The Council is however of the view that more proactive notifications are needed, as the proposal is insufficient to negate the need for separate notification of issuance of corporate communication, and it is impractical to expect a shareholder to visit a company’s website daily in order to keep track of the communications it has issued.  Moreover, when a company issues a communication, it should naturally be tied with a duty to bring it to the attention of its intended recipients by an effective means.  In this connection, proactive notification to shareholders by the issuing company would be a more pragmatic arrangement than the proposed one-off first-time notification.

13. As regards the proposed retention of shareholders’ right to request hard copy of corporate communications anytime, the Council takes the view the current option of hard copies only may not be in line with the objective of reducing paper consumption, as the shareholders are compelled to choose between a hard copy or no copy at all.  It is suggested that, in tandem to the right to request a hard copy, shareholders should also be given the option to request an electronic copy (or a hyperlink to a downloadable version) of the communications anytime.  It is believed that when being offered the options of either electronic or hard copy, shareholders with higher digital literacy tend to opt for an electronic copy.  The aforesaid suggestion would serve both the purpose of satisfying shareholders’ right to information and the goal of cutting down paper consumption. 

(ii) Other Comments

14. To further protect the interests of retail investors and promote paperless corporate communication in Hong Kong, the Council suggests further steps and measures for the consideration of the FSTB.

Clear display of fees and procedures for requesting copy of corporate communication

15. To facilitate shareholders’ request for hard copy or electronic copy of corporate communication, the Council suggests that companies should be required to proactively inform the shareholders of the fees that may be incurred when a request is made, and the level of fees should be reasonable.  Related information such as the procedures for making the request should also be clearly displayed on the company websites, or other dissemination channels where appropriate. 

Enhancing staff training for a smooth transition

16. To cater for the needs of retail investors or shareholders with lower digital literacy, the Council suggests that the Government may require companies to provide staff training in relation to the new arrangements, especially for front-line or customer-service staff, to readily provide assistance to the shareholders and handle their enquiries during the transition period. 

Enhancing publicity of electronic communication for behavioural change

17. To promote paperless corporate communication, the Council suggests that the Government could implement measures to educate shareholders about the initiative and conduct regular exchange of information with the companies to refine the new arrangements as appropriate.  For instance, the Council suggests that the Government may require both listed and non-listed companies to insert promotional messages of paperless corporate communication in their corporate communications currently disseminated in hard copy, as a way to raise the awareness of shareholders about the availability of electronic communication and to advocate for behavioural change of shareholders.

Conclusion

18. To conclude, the Council supports the proposed initiative of implied consent mechanism as a positive step toward environmental protection through the reduction of paper consumption in the business sectors.  At the same time, appropriate measures should be implemented to safeguard the right of shareholders to access corporate communications effectively.  The Council hopes that the FSTB will take into consideration the above views in response to the Consultation Paper to ensure a seamless transition, and to enhance the protection of shareholders' interests under the proposed new mechanism.