As a corporate lawyer, Teresa Ko has a lot of respect for the accounting profession. “I’ve had many fantastic collaborations and cooperations with accountants. We kind of go hand-in-hand and we help each other out,” says the China Chairman of international law firm Freshfields Bruckhaus Deringer. “It’s been a very successful partnership.”
That relationship has become even closer. In December, Ko was named one of seven new trustees of the International Financial Reporting Standards (IFRS) Foundation, which is responsible for the governance and oversight of the International Accounting Standards Board (IASB).
Taking up her role from 1 January this year, Ko and the 21 other trustees manage oversight of the foundation in the public interest, its strategic direction, and appointments to the IASB, IFRS Interpretations Committee and IFRS Advisory Council. They also ensure the financing of the foundation and approve its budget. “The foundation’s mission is to develop IFRS standards that bring transparency, accountability and efficiency to financial markets around the world,” says Ko. “I happen to believe passionately in transparency and accountability.”
She sees the IFRS as a bulwark of stability in an increasingly fragmented world. “The goal of the IFRS Foundation is to have a single set of high-quality, internationally recognized and global accounting standards. Now that we see globalization facing unexpected headwinds on many fronts – Brexit, Donald Trump and other challenges to the status quo – it is refreshing to see a global not-for-profit organization still thriving. I strongly believe in the IFRS’ vision, which will benefit economies around the world, if it can be realized. It’s a role in which I feel I can make an important contribution, and it’s a privilege to be part of it.”
“The foundation’s mission is to develop IFRS standards that bring transparency, accountability and efficiency to financial markets around the world.”
Hong Kong, she adds, as an early adopter of IFRS along with the European Union, Australia, New Zealand and South Africa, has an important role as a driver of IFRS awareness. “I very much feel that having a seat at the table allows us in Hong Kong and in the wider context – Mainland China and the rest of Asia – a voice to help to drive this forward.”
As an international financial centre, Ko observes, Hong Kong is committed to adopting all IFRS standards. “Hong Kong, has some of the leading financial services corporations (including insurance companies), and with IFRS 17 Insurance Contracts becoming effective in 2021,” she says. “We can take leadership in embracing some of these financial reporting changes which are intended to bring more transparency to the underlying businesses.”
Making shorter statements
Hong Kong and its financial community are of deep interest to Ko, who has been a leading member of the legal profession for decades. Born in Hong Kong and educated in the United Kingdom, she has been a partner at Freshfields – the world’s oldest international law firm – for more than 25 years, advising on some of the world’s most groundbreaking and high-profile corporate transactions during that time.
Some might have been content with this degree of career success. Not Ko: In addition to her legal career, she spent six years as a non-executive director of the Hong Kong Securities and Futures Commission (SFC), stepping down at the end of July this year, and is a Deputy Chairman of the Takeovers and Mergers Panel. Ko also chaired the Investor Compensation Company Limited. She was chairman of the Listing Committee of the Hong Kong Stock Exchange (HKEX) from 2009 to 2012 and deputy chairman from 2006 to 2009.
She has advised many Chinese state-owned, privately owned and multinational businesses on their initial public offerings (IPOs), which make up a number of legal fields in which she specializes. “Hong Kong should continue to do well as a fundraising centre in Asia, not just for China,” she says.
Similar to many accountants, Ko believes the listing process could be enhanced. “When I chaired the Listing Committee, one of the things I wanted, to make a difference, was to simplify and streamline the way we disclose information in a prospectus,” she recalls. One example she worked on was the IPO of Chow Tai Fook in 2011, a conglomerate company best known for jewellery. “It was billed as a handbag-sized prospectus of only 228 pages, which I drafted,” she remembers.
Since then, prospectuses have grown in size again. “Unfortunately the mindset is a tough nut to crack because it’s easier in reality to copy and paste rather than to write,” says Ko. “But I think it will result in more people reading the information if you can really write it concisely and to the point.”
Hong Kong’s unique status, she adds, enables light to be shone on the IPO process from a number of directions. “It is putting these companies on a platform which is subject to the scrutiny of regulators, investors, media and I think that is good for the healthy development of a company.”
Ko hopes the IFRS can continue its work on the simplification of financial statements. “I think there has got to be more education and awareness of the importance of numbers,” she says. “You’ve got to have the information that is relevant and transparent, rather than to have everything buried in a sea of numbers that you can’t actually make head or tail of as to what is material and what is not.”
Teresa Ko has been a partner at Freshfields Bruckhaus Deringer for over 25 years
Adjusting rules, listing crown jewels
Hong Kong has experienced a sea change in terms of IPOs with the SFC taking a harder look at candidates. “[The SFC] has been looking at all the applications and recently it has come forward with a new approach, which is to object to listings more proactively and directly, and a lot earlier on in the process,” says Ko.
Since 2017, Ko notes, the SFC has used the subsidiary Securities and Futures (Stock Market Listing) Rules legislation to raise objections to listing applications. “It has always been given that right, but in 2017 I think they have exercised it some 40 times, whereas in 2016 they used it two or three times.”
Ko describes the intervention as “a very positive development.” Too many companies, she argues, see a Hong Kong listing “not as a sustainable platform for them to grow their business, but as a means to either get out of [China] or to make money really quickly.” SFC enforcement, she adds, “puts a fear of God into the market, so that when you file an application, you’ve got to get it right.”
“SFC enforcement puts a fear of God into the market, so that when you file an application, you’ve got to get it right.”
The Hong Kong IPO scene has been complicated by the new rules of the HKEX to list companies with weighted voting rights. The first company to take advantage of this is Chinese electronics company Xiaomi. “[This] will continue to be a topic of some controversy,” she says. “It has been described as a contrived exception to the one share, one vote principle, and I think it should stay that way. Not many people would like to see weighted voting rights become commonplace.”
Ko says she would like to see more cooperation between Hong Kong’s stock exchange and its counterparts in Shanghai and Shenzhen. “I think that it shouldn’t be a ‘them and us’ situation. I think Hong Kong should complement the development of Mainland China.”
Ko says the Hong Kong capital market is still robust. “It is incredible that it has sustained for so long,” she says. In 1993, Ko was a newly minted partner at Freshfields when Tsingtao Brewery Co., China’s second largest brewery, raised US$97.8 million in becoming the first Mainland China company to go public in Hong Kong. “So that is already 25 plus years and we still are able to list the crown jewels of China’s state-owned sphere,” says Ko, who led the team advising China Tower on its US$6.9 billion IPO – the world’s biggest in almost two years – in July.”
Teresa Ko was chairman of the Listing Commitee of the Hong Kong Stock Exchange from 2009 to 2012.
Biotech and the future
Ko is energized by the HKEX decision to allow pre-revenue and pre-profit biotech companies to list – with a proviso that the sector has to develop with adequate advice from experts. “Biotech is exciting but I want to see a proper market being developed,” she says.
Borrowing Deng Xiaoping’s famous words, she says navigating the fledgling ecosystem “is not even crossing the river by feeling the stones. You are feeling one stone at a time.” But, she adds, HKEX has an opportunity to “give biotech companies, which historically have only ever gone to Nasdaq or New York [Stock Exchange], an opportunity to consider a listing in Hong Kong.”
Ko cites the Beijing-based cancer drug developer BeiGene as a good example of a United States-listed company coming to achieve a secondary public offering in Hong Kong. “The valuations cannot be so hyped that we kill our market before it has a chance to develop. It is incumbent on stakeholders and early rounds of investors who are taking a longer view of our market and want to list, to exit with a big pop.”
She cautions that despite HKEX’s appointment of a Biotech Advisory Panel, the pool of real experts in Hong Kong is limited. “The advisory panel needs to be expanded, because there are invariably a lot of conflicts. Many of the [panel members] are either listing their own company or have invested in companies which are listing, which will result in themselves being conflicted from giving advice.”
Independence is a matter close to Ko’s heart as she has watched the accounting profession grow over the years to embrace employment law, immigration, tax law, due diligence work, and other areas once in the territory of lawyers.
“[Accountants] have specialized in many areas, helping clients with corporate advisory, consulting, feasibility studies and internal review work. Because of the auditing work they do they are so much closer to the client [than lawyers]. But clearly they need to balance this against the need to stay independent with their auditing work.”
Where accountants and lawyers agree is on the application of “not just a healthy but a serious dose of professional scepticism,” she concludes. “I tell our team, assume nothing. That does not say that you expect everybody to be a crook, but you have to apply your independent judgment.”
For Hong Kong to maintain its global status, Ko is forthright. “I think we need to up our standard of quality,” she says. “We need to strive to maintain, if not enhance the standard of our professionals and support our courts.”
IFRS Foundation Trustees’ responsibilities include oversight of the organization in the public interest; its strategic direction; appointments to the IASB, the IFRS Interpretations Committee and the IFRS Advisory Council. It also ensures the financing of the organization and approval of its budget
