On 20 September 2024, the Institute held its 14th Biennial CGC at the JW Marriott Hotel Hong Kong on the theme: Reviewing, Rethinking and Resetting Corporate Governance for a New Era. The forum explored the accelerating pace of economic, social, environmental and technological shifts and how organisations must adapt to thrive.

A world defined by change

In today’s rapidly evolving business landscape, forces such as shifting geopolitics, climate action demands and the rise of cuttingedge technologies are reshaping how organisations operate. These dynamics are altering consumer behaviour, investor expectations, labour markets, trade and more. For business leaders, navigating this landscape requires not just resilience but foresight – and good governance will be essential to guide companies through the uncertainty while seizing new opportunities.

As the Guest of Honour, Carlson Tong GBS JP, Chairman, Hong Kong Exchanges and Clearing Limited (HKEX), outlined three cardinal areas that boards of the future must focus on to steer a course through this turbulent landscape.

1. Skill sets. With expertise in AI, cybersecurity, data analytics and climate risk becoming increasingly essential, boards will need a broader range of skills. ‘The boards of the future are going to need a much broader range of skill sets than ever. Age-old skills like legal risk and ethics will also need to be applied in new ways,’ Mr Tong noted.

2. Diversity. Highlighting the importance of diverse perspectives to prevent groupthink, Mr Tong stressed that ‘corporate governance is about creating the internal conditions to spot failures’.

3. Independence. Ensuring board members have the independence to challenge management is crucial. ‘Independence is critical because it empowers board members to take positions they believe they must take to fulfil their roles, even when those positions are in opposition to management. Without this, the very point of the board is nullified,’ Mr Tong stated.

Challenges and opportunities in delivering goods, services and value

The first session of the conference heard from a number of senior business leaders in top global organisations. Fred Lam Tin-fuk GBS JP, Chairman of the Airport Authority Hong Kong, shared insights into the challenges Hong Kong International Airport (HKIA) has faced over the past decade and the innovative steps taken to transform the airport into a world-leading aviation hub.

One of the most pressing challenges HKIA encountered was capacity. Originally designed to handle 45 million passengers, by 2017 the airport was serving 75 million. To address this, Mr Lam spearheaded the development of the airport into a three-runway system, set to be fully operational by the end of 2024. ‘Our goal is to reach 120 million passengers and 10 million tons of cargo by 2035,’ Mr Lam said.

But increasing capacity was not the only solution – innovation became a cornerstone of HKIA’s strategy. ‘We’ve introduced automation and robotics to further enhance efficiency,’ Mr Lam explained. The airport adopts driverless vehicles in its operations, including shuttle buses and baggage tractors. Biometrics technology has also been integrated to streamline the passenger experience, making security processing faster and more efficient. Off-airport check-in services at the passenger’s home or office have also been introduced.

Workforce shortages were another challenge, prompting the establishment of an aviation academy in 2017 to train staff and develop local talent. Mr Lam also highlighted the efforts to make HKIA a more attractive workplace, including creating facilities such as nurseries for employees with young children.

HKIA’s revenue is heavily reliant on passenger traffic, with 90% of income arising from aeronautical sources. To diversify, HKIA launched the SKYCITY project, transforming landside commercial areas into a thriving hub with retail spaces, hotels and entertainment venues. Looking ahead, Mr Lam envisions HKIA evolving from a city airport into an ‘airport city’, further integrating with the Greater Bay Area through more off-site terminals and enhanced connectivity. ‘We want to create a landmark not just for Hong Kong, but for the Greater Bay Area,’ Mr Lam noted.

Frank John Sixt, Group Co-managing Director and Group Financing Director of CK Hutchison Holdings Ltd, shared that CK Hutchison, with its diverse global operations spanning sectors such as ports, retail, infrastructure and telecom, faces challenges from evolving geopolitical tensions, regulatory demands and technological advances.

Mr Sixt highlighted four key domains where CK Hutchison is experiencing significant changes.

1. Cybersecurity. The rise of AI has accelerated the cybersecurity ‘arms race’, with AI now capable of creating sophisticated malware faster than ever before. Additionally, geopolitical tensions have increased the need to secure critical infrastructure like ports, energy and water systems, which have growing cyber dependencies.

2. Privacy and data protection. With global data storage surpassing 200 zettabytes (200 trillion gigabytes) and continuing to grow, the challenge of safeguarding privacy and personal data has intensified.

3. Tax compliance. The introduction of the Organisation for Economic Co-operation and Development’s base erosion and profit shifting (BEPS) Pillar Two framework and public country-by-country reporting requirements are transforming global tax compliance.

4. Sanctions reinforcement. Geopolitical conflicts have led to a sharp upturn in sanctions, such as export bans and investment restrictions.

CK Hutchison adopts a comprehensive, dynamic risk management framework that combines both bottom-up and top-down approaches to mitigate risks. Employees across all levels play a central role in identifying risks and proposing solutions, while strategic oversight from the board ensures alignment with corporate objectives. ‘This grassroots involvement is crucial because those on the ground often have the most immediate understanding of emerging issues on a day-to-day basis,’ Mr Sixt noted.

In addition, CK Hutchison recently introduced a policy on the ethical use of generative AI tools, implemented a new biodiversity policy and uplifted its cybersecurity standards groupwide. Mr Sixt also highlighted the importance of continuous improvement. CK Hutchison constantly reviews and updates its policies and risk management systems to stay ahead of the accelerating rate of change affecting its businesses.

Randy Lai, Chief Executive Officer of McDonald’s Hong Kong, shared how the company has evolved from making billions of transactions to building billions of relationships with its customers. Ms Lai highlighted that consumer needs and behaviours have shifted, especially after the pandemic.

She pointed to upward trends like digital-first experiences, the desire for novelty and a growing focus on sustainability. To address these changes, McDonald’s Hong Kong has embraced five pillars of innovation – experience, menu, digital transformation, people empowerment and ESG commitment.

One of the standout transformations has been McDonald’s digital journey. ‘In today’s world, there are six ways you can purchase McDonald’s,’ Lai explained, referencing mobile apps, self-ordering kiosks and third-party delivery platforms. The McDonald’s app, launched in 2018, offers personalised deals and convenient mobile payment options, addressing the common complaint of long queues.

During the panel discussion, moderated by Event Chair Peter Greenwood FCG HKFCG, business leaders also shared their strategies for ensuring their businesses remain competitive in an era of rapid change.

Mr Sixt emphasised that maintaining a leadership position starts with attracting and retaining the best talent. ‘If you are a place where people want to work and develop their skills, you’ll get the best people and that’s the starting point for success,’ Mr Sixt explained. He stressed that corporate governance plays a pivotal role in creating an environment where employees feel motivated and supported, which in turn drives business success.

Ms Lai also discussed the importance of embracing change and leveraging digital transformation to grow the business. ‘We value cybersecurity as much as food safety. With AI, we’ve set up a strong cybersecurity framework, which provides a solid foundation to safeguard our data,’ she said.

Despite the challenges posed by geopolitical tensions, regulatory changes and labour shortages, all three leaders expressed optimism about the future. ‘There are more risks in the world today than at any time I can recall,’ Mr Sixt admitted, ‘but at the end of the day, you have to be an optimist or else you wouldn’t do any business at all.’

Mr Lam agreed, noting that international travel is on the rise following the pandemic, while the propensity of people from the Chinese mainland to travel is predicted to increase appreciably in the years ahead. Currently that propensity is measured at 0.45, meaning that, on average, people from the Chinese mainland go on overseas trips 0.45 times a year (the figure for Hong Kong is 3.5). Any increase in that figure will be a positive development for Hong Kong, Mr Lam said.

Investing in a changing world

In the second session of the morning, speakers focused on how investment decisions are adapting to changing global realities. Hailiang Zhang, Business Head and Regional Managing Director for Greater China at Vistra, shared how his company helps private equity investors and enterprises unlock global and regional opportunities amidst a challenging business environment and increasing complexities.

Mr Zhang commented that despite global uncertainties such as geopolitical tensions, rising financial costs and slower private markets, there are still emerging opportunities for institutional investors after the pandemic, especially in the private sector. He highlighted three focused areas for navigating growing headwinds – regulatory compliance, operational efficiency, and globalisation and regionalisation.

Mr Zhang touched on the notable trend of international private equity firms establishing a presence in the Chinese mainland by creating RMB funds to leverage the local market’s potential. He detailed a case where Vistra was supporting a firm active in high-tech, healthcare and consumer sectors from the outset, helping to establish the RMB funds and Qualified Foreign Limited Partnership programmes, navigating regulatory requirements and crafting an effective operational model in the Chinese mainland.

This support extended to a biotech company in the firm’s portfolio, from initial China Overseas Direct Investment regulatory approval and VIE structuring to a listing on the Hong Kong Stock Exchange. Mr Zhang discussed the efficiency of this process, where all the regulatory approvals were secured within three months and the listing in just over four, continuing as the company expanded globally.

Mr Zhang emphasised the importance of embracing change, balancing local needs and global trends, and maintaining compliance to stay competitive in a shifting environment. ‘Be a friend of the times, work hard to stay ahead of the curve and you will win the game,’ he advised.

Kate Richdale, Partner, Head of Global Client Solutions Institutional Sales & Family Capital for Asia Pacific of KKR, outlined the significant role that private equity, infrastructure and other alternative assets will play in the future of Asia. She introduced the concept of the ‘4Ds’, which encapsulates key trends shaping the current economic environment.

1. Demographics. The ageing of society, particularly in Japan, is bringing a decline in the working-age population, creating challenges but also opportunities for sectors like healthcare.

2. Deglobalisation. Rising geopolitical tensions have prompted a shift toward domestic supply chains, reshaping investment strategies across industries.

3. Decarbonisation. The push for energy transition is driving massive investments in renewable energy, making decarbonisation a central theme for investors.

4. Digitalisation. The rapid adoption of AI is transforming industries, with the Chinese mainland and India at the forefront of AI deployment.

‘We think there are sizable investment opportunities across Asia’s geographies and across multiple private asset classes. You’ve got huge demand from a large urbanised middle class and tech savvy digital natives. You’ve got businesses with indigenous technology and IP. And you have a massive need for infrastructure buildout. All these can be achieved via Asia’s capital markets through monetisation, a deep talent pool, AI adoption and industry consolidation,’ Ms Richdale explained.

She also drew attention to the untapped potential of Asia’s alternative asset space, stating that alternative assets under management account for only approximately 10% of Asia Pacific’s GDP, compared with approximately 25% in the US. She pointed out that sectors like infrastructure, real estate and private credit will be crucial in addressing the region’s investment needs, particularly in areas like energy transition and urbanisation. ‘Private capital will be critical in unlocking value across Asia’s geographies and sectors,’ she said.

Devyani Daga CFA, Managing Director of Cambridge Associates, discussed the dominant issues currently shaping institutional investment decision-making. On sustainable investing, Ms Daga specified that investors have shifted from focusing on avoiding negative outputs like alcohol or tobacco stocks, toward impact investing, focusing on positive outputs like climate solutions. They then moved to adding ESG analysis to the investment process to improve outcomes. ‘We believe that markets don’t exist in isolation, they don’t exist outside well-functioning societies and on a planet that’s unsustainable,’ Ms Daga remarked.

Ms Daga emphasised that ESG analysis can uncover risks and opportunities often overlooked in traditional financial reports, helping investors navigate trends such as climate change and energy transition. She also stressed the importance of climate-aware investing, urging investors to employ managers who consider climate risks and opportunities in their decision-making.

On private investments, Ms Daga highlighted the significant rise in institutional allocations to private markets, noting that these have increased from under 5% two decades ago to nearly 20% today. ‘The highest returns have typically been achieved by investors with the largest allocations to private investments,’ she said, adding that private markets require a different mindset and involve a long-term commitment.

In the panel discussion moderated by Mr Greenwood, Flora Wang FCG HKFCG, Head of Stewardship, Asia & Portfolio Advisor at Fidelity International, clarified how trends like demographic shifts, decarbonisation and sustainability are reshaping investment strategies.

Ms Wang acknowledged the alignment between Fidelity’s observations and the key trends presented earlier by Ms Richdale. She described how demographics, particularly the population decline in the Chinese mainland and Japan, have opened opportunities for sectors such as senior healthcare and automation. ‘With a declining working population, industrial automation has become an increasingly interesting investment area,’ she noted.

As a primarily public market investor, Fidelity has integrated ESG considerations into its investment decisions, both before and after acquiring positions in companies. She underscored that Fidelity’s approach to sustainable investing goes beyond what a company produces. ‘It’s not just about producing green products like electric vehicles or solar panels, it’s also about changing how the market operates,’ she said. She cited examples such as evaluating a hotel operator’s efforts to reduce food waste or improve energy efficiency. ‘We focus on how companies manage their negative externalities on the environment and society, as well as their corporate governance practices.’

Ms Wang concluded by acknowledging the evolving nature of ESG. ‘The industry is going through a phase of healthy self-reflection about what sustainable investing means. This reflection will ultimately be good for the long-term growth of sustainable investment,’ she said.