Recent Notes from Hong Kong

Earlier this month I spent a few days in Hong Kong, on my way back from Europe. Hong Kong was my home for 6 years – before, during and after the 1997 Handover – and I have continued to visit on a regular basis ever since. While I didn’t directly witness any of the latest clashes between pro-democracy campaigners and the police, I did see (and hear) the knock-on effects of the past 6 months. I also spoke to a range of people living and working in the city – from local residents to long-term expats; from small business owners to entrepreneurs; from corporate employees to public servants; from teenagers to senior citizens. Whatever their particular views on recent events, their one common hope is that the situation can be resolved peacefully, and soon.

“Maze of Today” by Wu Guanzhong (2007) – Image sourced from China Online Museum website*

The trigger for the current protests was a proposed extradition law between the Hong Kong SAR and the rest of the PRC (as well as Taiwan and Macau). The bill was highly contentious, given the very different legal systems between Hong Kong and the Mainland. Serious concerns were expressed by the business sector, the legal profession and the general public. These concerns were given wider voice by the hundreds of thousands of ordinary people who joined the first of the peaceful mass marches at the start of the summer. Since then, nearly every weekend (and at times during the week) there has been direct action in the form of marches, strikes and occupations – sometimes leading to street battles between police and protestors, images of which have been seen around the world. These events have been accompanied by allegations of police brutality, the alleged use of agents provocateurs, and suggestions that the protestors are either terrorists, traitors or a threat to society.

On one level, Hong Kong continues to operate normally (although getting into the international airport is a little trickier since it was the target of so-called “stress testing” of the public roads and transport system). On the other hand, it certainly feels quieter than normal, and visitor numbers are down – as much as 40% overall on one measure, with a 90% decline in visitors from the Mainland. (My flight from Europe was barely half full.)

With the increased protest activity at weekends, public transport can be tricky. Some subway stations are suddenly closed without much warning from Friday evenings onward, and the express train from Central to the airport bi-passes the usual intermediate stops. On the Sunday I was there, there had been a mass gathering in Central, and access to the nearest subway station (for the local train service back to Kowloon) was closed, so there was an orderly queue of several hundred metres as people waited for the Star Ferry – many of the passengers dressed in black t-shirts, the unofficial uniform of the protest movement.

Given the recent bans on marches and gatherings in public places (notwithstanding Hong Kong’s right to peaceful assembly) a strange phenomenon has emerged. Each night, at around 10.30pm, local residents open their apartment windows and start chanting slogans associated with the pro-democracy movement. It is both eerie and extremely moving.

This nightly display certainly evokes the sense that no-one wants to see complete chaos or a violent end to the protests, so they chant in hope that a peaceful solution can be found. Otherwise, hope will give rise to despair, and with it the slow, painful decline of Hong Kong as a global city – a multi-cultural, international hub for trade, commerce, finance, ideas and innovation that combines notions of east and west, new and old, pragmatism and spiritualism.

The protestors have issued a set of five key demands. One relates to scrapping the extradition bill, which has now been withdrawn by the Hong Kong Chief Executive. Three relate to the protests themselves – removal of the term “rioters” to label the protestors; an independent investigation into the police response and alleged brutality (and even into police in-action when protestors were attacked by counter-demonstrators with seeming impunity); and an amnesty for all protestors who have been arrested to date.

The fifth demand, Universal Suffrage in direct elections for both the Legislative Council (Hong Kong’s Parliament) and the Chief Executive, is a lingering issue from the Umbrella campaign of 2014 (when large parts of the city were occupied in protest at Beijing’s decision to “defer” one person one vote). It’s probably even more contentious than the withdrawal of the extradition bill. To summarise: the Basic Law is Hong Kong’s Constitution. It is supposed to enshrine the city’s pre-existing common law systems for a minimum of 50 years after the Handover. Under the “One Country, Two Systems” regime, designed to govern Hong Kong’s legal, political and economic relationships with the Mainland, the people of Hong Kong were assured that their way of life would continue as before after 1997.

Article 45 of the Basic Law, states that:

“The ultimate aim is the selection of the Chief Executive by universal suffrage upon nomination by a broadly representative nominating committee in accordance with democratic procedures.”

The above has to be read in conjunction with Article 15 (Beijing directly appoints the Chief Executive), and Annex 1 (defines the candidate selection and election process – which has been revised in recent years).

The challenge is that the Central government believes it has to keep control over both the candidate nomination process, and the membership of the Election Committee (election college). On current evidence, the people of Hong Kong are unlikely to get to directly elect their own Chief Executive, nor nominate the candidates of their own choosing. (And the Legislative Council will continue to comprise members who represent “functional constituencies” – elected representatives voted in by their peer groups from various vested interests.) Even if they did directly vote for the Chief Executive of their choosing, Beijing would reserve the right not to confirm them in office, and would appoint their own candidate instead.

Of course, it’s not that Hong Kong was particularly democratic under colonial rule – the Governor was technically appointed by the British Monarch (on the advice and recommendation of the British Foreign Secretary), and acted as the Crown’s direct representative.

On another level, the model for the Election Committee is something like the US Electoral College that formally elects the President, based on the delegates elected by each State. This process was seen as “a compromise between election of the President by a vote in Congress and election of the President by a popular vote of qualified citizens”.

Finally, I was given an interesting interpretation of “One Country, Two Systems” by an elderly gentleman I spoke to on the MTR one day. “Where are you from?” he asked. “Australia” I replied. “Ah, near New Zealand. Same country.”

* My reason for choosing the above picture of Hong Kong by Wu Guanzhong to illustrate this blog is two-fold:

First, the painting is called “Maze of Today”, rather an apt title for the current state of affairs. Second, while I was working as a publisher in Hong Kong in the 1990s, my company licensed another Hong Kong picture by Wu for the cover of an introductory book on the law of the Hong Kong SAR. The first edition was issued in 1996, with a second edition in 2001 – and it still appears to be on the Hong Kong University reading list for law students, and cited in other law books as recently as this year.

Next week: Startup Vic’s Impact Pitch Night

 

The Metaphorical Glass Jaw

As I get older (maybe not necessarily wiser), I feel that as a society, we are becoming far less tolerant and yet far more sensitive – something of a paradox, possibly linked to a decline in personal resilience and a lack of quality and robustness in public discourse. And for a country that is both a secular state and a liberal democracy (and definitely not a theocracy), there has been a surprising amount of debate in Australia recently, about the need for a new or revised “freedom of religion“.

John Stuart Mill – Image sourced from Wikimedia

Much of the commentary has been prompted by the thoughtless and potentially harmful remarks by a professional sports player, who espouses a particularly fundamentalist strain of Christianity. Because the very public expression of his personal beliefs led to the termination of his employment, this has been interpreted as a curtailment of the player’s freedom of religion.

Without getting too legalistic (and there is an administrative review pending), the player’s public statements were out of line with the social values and civil rights espoused by his employer – to the extent that they could bring this particular sporting code into disrepute. It was also a repeat incident. At the very least, these comments could have led to a reduction in the employer’s revenue from sponsors or spectators. (And let’s consider that his comments drew so much attention because he had the privilege of a public platform, one which came as a result of his employment status and his professional profile.)

According to this player’s particular creed, his human-constructed belief system permits, condones and even encourages the use of language that bullies and belittles people who don’t adhere to his own views on sexuality, lifestyle choices or even “belief” itself. While much has been said about the homophobic nature of the said player’s tweet, let’s not forget he also targeted atheists in the same context, simply because they are non-believers.

As I frequently tell customer call centres, who often like to blame the “system” for their own organisation’s failings, a system is only as reliable as the people who design and run it. So, if being an adherent to a particular belief system means you have to hold and profess abhorrent views, especially those that are out of step with civil society, then clearly there is something at fault at the heart of that mechanism.

I recently heard a speech by a retired judge on human rights and civil liberties. He referred to an aphorism attributed to John Stuart Mill, in connection with his treatise “On Liberty”, and the harm principle:

“Your Liberty To Swing Your Fist Ends Just Where My Nose Begins”

In other words, you may be free to say what you like, but Isaiah Berlin’s concept of negative freedom means that (despite Voltaire’s standpoint in defence of free speech) even your verbal punches are not permitted to interfere with or harm someone else’s rights – yet alone instill in them a fear for their personal safety and human dignity.

Nowadays, some might say that too many people are prone to having a metaphorical glass jaw – that they take offence too easily, and seek to find malicious intent in any views or comments that they find objectionable or that do not accord with their own world view. Equally, people can (metaphorically) stick their jaw out, seeking to provoke a reaction by drawing attention to themselves, so that they can claim “foul” when they bang up against a countervailing fist. The boundary between personal rights and freedom of expression is becoming increasingly blurred.

When it comes to calls for the special protection (and even promotion) of religious freedoms, I have something of a problem. Quite apart from the entrenched social prejudices inherent in many organised religions, it seems incongruous that such institutions can claim tax benefits as charitable bodies, and receive public funding while enjoying exemptions from certain anti-discrimination laws.

Although we don’t have a law against heresy in Australia, we still have blasphemy laws in most States. Even though they are rarely invoked, the fact that they exist reinforces the notion that far from needing a “freedom of religion”, religious beliefs are somehow already seen to be above the law. Surely, in a multi-cultural, secular and pluralistic society, religious beliefs will have to take their chances alongside (and rub up against) the rest of human constructs and natural systems – science, history, psychology, philosophy, politics, sociology.

Next week: Startup Vic’s Health Tech & Med Tech Pitch Night

 

 

 

 

Melbourne Legal Hackers Meetup

Given my past legal training and experience, and my ongoing engagement with technology such as Blockchain, I try to keep up with what is going on in the legal profession, and its use and adoption of tech. But is it LawTech, LegalTech, or LegTech? Whatever, the recent Legal Hackers Meetup in Melbourne offered some definitions, as well as a few insights on current developments and trends.

The first speaker, Eric Chin from Alpha Creates, defined it as “tech arbitrage in the delivery of legal services”. He referred to Stanford Law School’s CodeX Techindex which has identified nine categories of legal technology services, and is maintaining a directory of companies active in each of those sectors.

According to Eric, recent research suggests that on average law firms have a low spend on legal technology and workflow tools. But typically, 9% of corporate legal services budgets are being allocated to “New Law” service providers. Separately, there are a growing number of LegalTech hubs and accelerators.

Meanwhile, the Big Four accounting firms are hiring more lawyers, and building our their legal operations, and investing in legal tech and New Law (which is defined as “using labour arbitrage in the delivery of legal services”).

Key areas of focus for most firms are Practice Management, Legal Document Automation,
Legal Operations and e-Discovery.

Joel Seignior, Legal Counsel on the West Gate Tunnel Project, made passing mention of Robert J Gordon’s economic thesis in “The Rise and Fall of American Growth”, which at its heart postulates that despite all appearances to the contrary, the many recent innovations we have seen in IT have not actually delivered on their promises. He also referred to
Michael Mullany’s 8 Lessons from 16 Years of the Gartner Hype Cycle, which the author considers to be past its use-by date. Which, when taken together, suggest that the promise of LegalTech is somewhat over-rated.

Nevertheless, businesses such as LawGeex are working in the legal AI landscape and other disciplines to deliver efficiency gains and value-added solutions for matter management, e-billing, and contract automation. Overall, UX/UI has finally caught up with technology like document automation and expert systems.

Finally, Caitlin Garner, Head of Innovation at Allens spoke about her firm’s experience in developing a Litigation Innovation Program, underpinned by a philosophy of “client first, not tech first”. One outcome is REDDA, a real estate due diligence app, that combines contract analytics, knowledge automation, reporting and collaboration. Using off-the shelf solutions such as Kira’s Machine Learning, Neota’s Expert System and HighQ, the Allens team have developed a transferable template model. Using a “Return & Earn” case study, the firm has enabled the on-boarding of multiple suppliers into a streamlined contract management, signature and execution solution.

Next week: Notes from New York Blockchain Week

 

Life After the Royal Commission – Be Careful What You Wish For….

In the wake of the recommendations from the Royal Commission into Misconduct in the Financial Services Industry (aka the Hayne Report), one of the four major banks announced that it would be removing bonus payments for its front line tellers. This was supposedly in line with Hayne’s proposal that performance-linked remuneration, financial incentives and sales commissions in the financial services industry need to be restructured.

Image sourced from Small Caps

This prompted a mixed reaction among the public, based on some of the comments I have read on social media. Some felt that the tellers were being made scapegoats for the banks’ bigger failings – others felt that this was an inevitable outcome from the banking backlash.

Personally, I believe the announcement is potentially just one of the many likely “unforeseen consequences” to come out of the Royal Commission – I’m not saying this particular decision is good or bad, just that we need to be aware of what’s likely to happen based on Hayne’s key recommendations. Be careful what you wish for. And, as an underlying theme to this whole debate, let’s not forget that most Australians are shareholders (directly or indirectly via their Super) of the Four Pillar Banks (one of the greatest government-endorsed and legislatively protected market oligopolies around which also helped steer us through the GFC relatively unscathed….).

So, what else might we see?

First, as with financial advice, residential mortgages will move to a “buyer pays” model. Brokers would not be able to receive commissions from mortgage providers or other intermediaries based on the products they sell, recommend or refer – instead, mortgage applicants will be expected to pay for the services of a broker, who will therefore be under an obligation to find the best product for their client. But removing trailing commissions and other conflicted remuneration may also mean that brokers could seek to earn additional fees from their mortgage clients by re-contacting them a year or so later (with permission, of course) to inform them of a better deal. (Even now, lenders are not explicitly obliged to let existing customers know if they have a newer product that may be better for them). Some estimates suggest that fee-for-service will add about $3,000 to the initial cost of applying for a mortgage. Whether this will also lead to more competition among mortgage providers (who will no longer have to pay broker commissions) is not clear.

Second, the increased focus on acting in the best interests of the customer may result in placing all financial planners, brokers, advisors, insurers, and banks (and their officers, agents and employees) under a fiduciary duty of care to their clients – even if they are not directly managing specific assets, selling a specific product or advising on specific services or financial strategies. In other words, advisors etc. will be deemed to have taken ALL of a client’s needs and circumstances into account. (This is largely the result of the miss-selling of financial products, and the charging of fees for “no service”, by banks and their retail wealth management arms.)

Third, the increased cost of compliance will disproportionately impact smaller financial institutions such as credit unions, member-owned banks and other mutual societies, who came through the Royal Commission pretty much unscathed. Those costs will need to be passed on, to customers and members. Of course, there has also been some political debate around the need for some sort of banking levy – which will ultimately be passed on to shareholders or customers (who are often the same people…).

Fourth, and related to the above, the separation of roles between those superannuation trustees who act as both fund trustees and as responsible entities of managed investment schemes will have a knock-on effect in terms of operating and compliance costs. Such dual-regulated entities will have to decide whether to focus on their trustee role, or appoint a separate and independent responsible entity in respect of the asset management.

Fifth, the higher compliance and regulatory obligations may deter or inhibit more competition – either from new market entrants from overseas, or from local start-ups. The recent restricted ADI model (aimed at enabling challenger or neo-bank brands) has not exactly seen a raft of applications, and off-shore banks tend to come and go in successive waves, largely driven by market conditions. If lending standards are further tightened, it may be less attractive for foreign firms to set up local operations. In fact, there have been calls to force some smaller superannuation funds to merge with larger funds, or exit altogether for reasons of scale and efficiency – potentially taking out some of the competition in that sector. And if mortgage brokers have to move to a fee-for-service model, it will likely force some providers to exit the industry, as happened with the FOFA reforms in financial planning and wealth management.

Sixth, at the level of corporate governance, boards of financial services providers will need to be mindful of their duty to act in the best interests of the company – which has traditionally meant the share holders – and the increased duty of care towards their customers, which may at times be at complete odds. Non-executive directors willing to serve on the boards of banks and insurers may also be harder to find, at a time when there is already a high concentration of directors who sit on multiple boards across Australia’s biggest companies. So, board diversity may be even harder to achieve, especially if non-executive directorships become subject to even greater formal qualification, to ensure board members have appropriate professional experience, industry knowledge and technical expertise, as well as financial competence and risk management skills.

Finally, all this is happening as we face something of a credit squeeze (thanks to increased lending standards and greater provisioning for risk-weighted assets) heightened economic uncertainty (slowing GDP growth, lower productivity, wage stagnation, falling property prices), and an upcoming General Election campaign during which the Hayne Report will be held up as a key reason for why “things have to change”. The irony being that, except in a few areas, the complaints aired and wrong-doing uncovered during the Royal Commission could have been addressed by the regulators and enforcement agencies via existing laws on financial services, prudential standards, and general consumer protection (unfair contract terms, unconscionable conduct, deceptive and misleading behaviour). Plus, the Australian Financial Complaints Authority (which combines the remit of the former Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal) has a wide jurisdiction over consumer complaints relating to Credit, Finance and Loans, Insurance, Banking Deposits and Payments, Investments and Financial Advice, and Superannuation. And as with most External Dispute Resolution agencies, AFCA and its predecessors have an obligation to report on systemic issues within their industry.

Next week: Pitch X