Commentary

Hong Kong is one of the fastest paced places in the world, and for business executives stress is part and parcel of everyday life today.

The average lifespan of a multinational (Fortune 500) company is 40 years. Of today’s Fortune 500, only 67 still exist from the first list published in 1955. Last week 133 year old Kodak filed for bankruptcy protection; in its 1980 heydays it employed 145,000 people, had great products (it even invented the digital camera) and its brand belonged to the most valuable in the world. Too slow to change to the digital world, decades of decline ended in a slow, but certain death. In a recent study that TNS conducted with CMOs of 30 multinationals about digital and marketing, the CMOs recognized the necessity of speed and change, as they mentioned the imperatives for 2012:

In Hong Kong, gone are the days when we were chained to our desk from 9 to 5. How we work is changing. The idea of a “Third Place,” a space that’s neither home nor office but where people want to spend a portion of their lives, was introduced as far back as 1989 in Ray Oldenburg’s book “The Great Good Place.”

Today’s economic climate might look uncertain at best – and grim at worst – but companies can meet the challenges of market volatility by making the right decisions and investing in their people. Traditionally, investing in talent is a costly and often risky affair, particularly when times are tough. However, many of these costs and risks can be mitigated by making some slight adjustments in the type of employee a company is looking for. Flexibility –which not only adjusts to volatile markets but thrives off it – does not have to come at the cost of quality.

Once upon a time, Li Ka Shing was the most admired person in Hong Kong, being the richest of all tycoons; HSBC was the most revered company, as it racked in loads of money of which it paid back a fair share to its many small Hong Kong shareholders; and Hong Kong was proud to have the highest density of Gucci, Louis Vutton and Dolce & Gabbana stores in the world.

Hong Kong, like other well-developed countries and cities, needs to work hard on “sustainable development” to create a better balance between the economy, environment and society. Businesses, whether small or large, have a clear role – and responsibility – to contribute to ensuring that Hong Kong’s status as a world class city is not jeopardized.

Hong Kong’s infrastructure and transport industry faces external threats such as increasing competition from alternative gateways into China, including Shenzen and Guangzhou. At the same time, the industry must conquer human capital challenges such as the drain of highly skilled workers and a surplus of unskilled employees. This industry in Hong Kong must compete with cities in the region such as Singapore and Shanghai for highly skilled workers. Problems with pollution, high rental costs and a poor living environment are deterring many skilled expatriate and home-grown workers from living in Hong Kong. There is also a surplus of low-qualified or unskilled workers across the city state. Executives must now pursue a more comprehensive human capital strategy across these interrelated dimensions—talent, leadership, culture and organization structures. A human capital strategy helps put in place the right leaders to source, develop and direct the right workforce talent, supported by the right culture, organization and operating model. We believe they should: Create a more strategic HR organization. New success factors for HR have arisen in recent years. Managing talent across national borders is especially important, given the global nature of most large companies today; this includes enabling the businesses to operate consistently around the world, while also satisfying the legal requirements of individual nations. It’s also essential to have better metrics, which now means more than simply monitoring administrative costs. To be industry leaders, executives now must understand and measure the value of human capital itself—the total costs and investments in people.

Digital Waste, Zombie Followers and Marketing Opportunities

On the 31st of October 2011, the 7th Billion World citizen was born. Chances are high that this baby will open its eyes in Asia, as Asia contains 60% of the world’s population, and 95% of all children are currently born in developing countries.

The Hong Kong Exchanges and Clearing recently decided not to place any limit on the number of directorships anyone can hold. This could very well encourage talented executives to hold high numbers of directorships, to the detriment to very companies they are meant to provide valuable board oversight to. There is a limited pool of good quality independent directors available in Asia and indeed, the world. As such, it is natural that working or retired executives with strong business experience and networks are invited to become board members at a variety of companies other than their own. Many of the highly sought directors after hold over six to eight board memberships each. (These are just the board seats on listed companies that we know about and do not even include official or unofficial directorships at privately held companies). Often times, the more reputed a CEO or senior executive, the larger number of external boards he/she tends to sit on, according to a study by Dinesh K Padmanabhan1 & Chinmoy Ghosh (2009). Cash compensation for such executives also increases with both their reputations and the number of external board seats they hold. Having executives who hold external board seats within their peer groups or industry can be useful to companies. The authors state that companies reach higher levels of profitability when their CEOs sit on other well performing companies’ boards. Multiple directorships are hence recognized as a good thing, but to a point. The same study showed that when a CEO hold a “large number of outside directorships” however, his/her cash compensation decreases, due to shareholders’ worry that their CEO may be spending too much time away from their own firm. In another 2007 study, “Multiple Directorships and Acquirer Returns”, authors Seoungpil Ahna, Pornsit Jirapornb, and Young Sang Kimc argue that multiple directorships affect the quality of managerial oversight. In studying 1,163 announcements of mergers and acquisitions over a period of six years, the authors found that the acquiring firms experience more negative abnormal returns, when their directors hold more outside board seats. They interpret this result as suggesting that directors serving on multiple boards allow value-destroying acquisitions when they become too busy beyond a certain point. The demands on board directors are increasing. Regulations are on the rise and the business world is ever more complex. To be effective, directors need to be able to contribute independent perspectives, essential skills and experiences, and an understanding of the evolving global marketplace. They should not be deterred by the increased demands placed upon corporate directors, even when those demands involve greater potential liabilities, difficult travel schedules, or complex leadership challenges. Such responsibilities call for dedicated time and effort. Membership in a large number of boards limits anyone’s ability to provide proper corporate governance in all of one’s board appointments. From observing and advising boards in Asia over the past 15 years, it is evident that a board director who is not tied to a full-time executive job can still effectively contribute if he/she sits on a maximum of five or six boards, and no more. Fully employed executives are best advised to take up only two or three board positions at most. The Hong Kong Exchanges and Clearing should not bow to the argument that those hoping to make a full-time job out of independent directorships should be able to accept several – with no limit. Mainland regulators currently limit the number of board seats an individual can hold to five, and Hong Kong should consider the same.

Global investments and talent have gravitated towards Hong Kong and Greater China since it began its integration efforts with the global economy, and the red dragon has since ascended rapidly as a world economic power.

The growth of developing economic powerhouses in Asia is starting to impact personal fortunes with a fast increase in households with more than US$ 100,000 investable assets – according to a TNS survey conducted in 24 countries worldwide.

As social media continues to grow, businesses are taking a more sophisticated view of how to use these new channels to market – both with customers and internally within their organisations.

Our Common Goal: Growth Growth is the engine of our economy, the main pursuit of businesses and the ambition of countless people. Growth is about hope and desire; the hope that our children have a better life than ourselves, the desire to accumulate wealth, the ambition to gain knowledge, acquire experience, but also to become a better human being. Growth per se may not be a good thing; it requires the right direction, speed and choices - and it has to be balanced in order to be sustainable.

There is a growing concern in Hong Kong’s private sector: The city is facing a crisis of quality office space whilst demand is continuously increasing. Predictions are that the annual average supply of new office space coming online over the next three years will be 50% of the past 15 year annual average, which will force rents upward. Hong Kong already has the most expensive office space globally by a significant margin, causing affordability issues and the latest research is showing that even Wanchai rents are now on par with central London.

“The social development and increasing wealth cause more and more flexibility, especially of the increasing middle class. Rail- and road infrastructure is under construction, while aviation infrastructure is still in an early planning and development stage due to delayed environmental assessment, air space congestion and Asian wide constraints. The year 2010 was crucial for decision making for most of the Asian countries, to define the strategy and way forward how to develop the necessary domestic, Asian and international air transportation network. Finally also the Chinese government has come up with an implementation strategy and budget schedule, which allows for the first major aviation infrastructure projects to commence implementation.”