Why Hong Kong listed company culture isn't fit for the future

The dominance of the large, listed companies so long at the heart of Hong Kong’s economic and business culture is under threat, challenged by the government efforts to boost competition, increasingly sophisticated shareholder demands, changing or disrupted markets and rival economic centres in the region.

Results count whether a company is private or public, but today, the convention of listed companies concentrating on simply delivering a financial performance over very specific periods of time is outmoded. They cannot continue to focus only on the ‘First Horizon’ – the most immediate business or product cycle, people want to know what is coming next?

They need to start learning from private companies and start-ups, which dance to their own beats. Without the constant pressure on immediate results, they keep a constant eye on the ‘Third Horizon’ – looking five, 10, even 15 years or more ahead to the business and commercial opportunities of the future.

Hong Kong listed companies need to understand they are operating in a sea of change rather than calm waters. It’s no use waiting for your platform to start burning, or your business model to actually be disrupted, before embracing change. But their current cultures make such an agile approach difficult, if not impossible.

The typical culture of listed companies – and not just in Hong Kong – is founded on financial metrics, according to a study of newspaper comments from the CEOs of 10 of the largest Hong Kong companies. Over a six-month period, 99% of public comments made by those CEOs were about financial performance.

In addition to political pressure on monopolies, increased competition and disruption, the outside world is also increasingly uneasy with listed companies focused solely on increasing shareholder return alone.

Stakeholders and investors now have clear expectations for companies to have a higher purpose and/or address social issues, such as making Hong Kong a better place or making their business more sustainable/responsible. They demand that this is more than just a stated aim, but that it shows actual results. The bigger the goal and the more customers can relate to it, the stronger brand and value can become. Hong Kong Broadband is an excellent example, where their company purpose (to make our Hong Kong a better place), culture and business goals are very well aligned, and they are able to deliver value to their customers, as well as to their stakeholders and employees.

Hong Kong listed companies conventional approach to performance makes is tough for senior management. If a leader does not meet their financial KPIs, typically based on earnings per share or some purely financial metric they are cast out. This discourages them from addressing the challenge of determining the operating model of tomorrow and how the company will prosper in the future. The focus is simply on the financial metric today.

To change this dynamic; the vicious circle of only today matters lets focus only on the now, companies need to start aligning KPIs of senior management with what really matters to their long-term prospects – e.g more innovative delivery models, products and services which match their clients’ and customers’ needs not just today but the future.

If your leadership team is not incentivized to think about the Future it is highly unlikely they will!

Already, we are seeing some of the biggest global listed companies adapt by viewing performance in full colour rather than monochrome. They are taking on start-up like incentive models, giving leaders the freedom to make mistakes, and explore new business models, so long as these efforts increase the company’s understanding of its future operating environment.

At some companies, ‘shadow boards’ have been developed, where staff from lower down the hierarchy are brought in to listen to the discussions of more senior peers, and asked to contribute their own first-hand perspectives of how client and customer needs are changing. Hong Kong’s leading companies need to start listening to these and other voices before it’s too late.