RECENT CORPORATE GOVERNANCE DEVELOPMENTS IN CHINA
INTRODUCTION
In anticipation of entry into the World Trade Organization (“WTO”), the government of the People’s Republic of China (“PRC”) opened its banking ctor a few years ago to lected foreign financial institutions, including HSBC, Citibank and The Bank of East Asia. The foreign banks have been allowed to conduct limited Renminbi business in Shanghai. The PRC finally gained access to the WTO in 2001 and so further relaxation is expected. According to the timetable, foreign banks will be allowed to conduct Renminbi business with domestic firms within two years and with Chine citizens within five years from the date of entry into the WTO.
A key prerequisite for banks to capitalize on the opportunities is for the PRC to really adopt a level playing field and allow market forces to determine winners and lors. And a key component of this is the corporate governance structure, without which realization of the opportunities may remain elusive. Therefore, this article looks at the latest PRC corporate governance improvements and why more will be required before the PRC corporate governance structure can really protect the interests of business stakeholders
Corporate governance
According to the World Bank Group, corporate governance is about maximizing value subject to meeting a corporation’s financial and other legal and contractual obligations. This inclusive definition stress the need for boards of directors to balance the interests of shareholders with tho of other stakeholders such as employees, customers, suppliers, investors and creditors, in order to achieve long-term sustained value. Recognizing the importance of corporate governance in the continuous development of the Chine capital markets, almost immediately following its announcement of the “Guiding Opinion for Listed Companies on the Establishment of an Independent Non-Executive Directors System”1, the China Securities Regulatory Commission (“CSRC”) issued a consultation paper and the corresponding final version of “Guideline on the Management of Listed Companies” on 11 September 2001 and 7 January 2002 respectively. Guideline on the Management of Listed Companies (“the Guideline”)
According to the introduction, the Guideline aims at:
encouraging domestically listed companies to establish and develop a modern enterpri system; regulating the operations of domestically listed companies; and
promoting the healthy development of the PRC curities market.
1The “Guiding Opinion for Listed Companies on the Establishment of an Independent Non-Executive Directors System” was announced on 16 August 2001and requires that there be a minimum of two independent non-executive directors on the board of a listed company by 30 June 2002, and that the number of independent non-executive directors be over one-third of the board of directors by 30 June 2003.
The Guideline ts out the basic principles on the governance of domestically listed companies, the measures needed to protect the interests of the investors, and the behaviour and professional ethics of the directors, members of the Supervisory Committee and managerial staff of the listed companies.
The Guideline is applicable to all domestically listed companies, which should consistently adhere to the principles in developing their corporate governance systems. The Guideline will also rve as a yardstick for the regulators to measure the effectiveness of corporate governance structures. Domestically listed companies with rious governance deficiencies will be required to carry out reforms in accordance with the principles of this Guideline.
Some practical considerations
英文小故事The Guideline is a welcome, but at the same time a very ambitious, move by the CSRC. It reprents a significant step forward for the proper governance of PRC listed companies and potentially, it could place the PRC at the forefront of developments in global corporate governance. However, despite the CSRC’s admirable intentions and the comprehensive coverage of the Guideline, its effectiveness will depend very much on its practical implementation. Some of the practical problems domestically listed companies may have with the corporate governance initiative are:
wording
wincha) Impreci
A large portion of the Guideline is in the form of guiding principles using impreci wording to describe desirable actions and circumstances. As the criteria for compliance with the Guideline are not clearly defined, there are plenty of grey areas and ambiguities, leaving companies who wish to abu the system room to manoeuvre.西蒙菲莎大学
For example, independent non-executive directors (“INEDs”) have been praid as guardians of corporate governance, and champions and protectors of minority shareholders. However, the Guideline and the Guiding Opinion for Listed Companies on the Establishment of an Independent Non-Executive Directors System are not clear on who actually has the power to appoint INEDs. If majority shareholders dominate the appointment of the INEDs, the whole board may still be effectively under the control of the majority shareholder.
b) Immature corporate governance environment
As suggested by the World Bank Group, corporate governance may be viewed as follows:
neath
The framework clearly shows that for corporate governance to work, a number of internal and external process must function properly and interact effectively with each other.
Shareholders
Unlike more mature curities markets, shareholders in the PRC stock markets polarize into majority and minority shareholders. Majority shareholders are typically very strong and individual minority shareholders extremely weak, and there are few sophisticated institutional minority shareholders such as pension funds, mutual funds and financial institutions to counter the influence of the majority shareholders.
四六级成绩公布的时间2021
检验检疫局英文Board of Directors (including executive directors, INEDs and boards’ sub-committees)
Long before INEDs and boards’ sub-committees were hailed as guardians of good corporate governance, the supervisory committees long existed as supervisors of the state owned organizations. Unless there is a change in the underlying fundamental parameters, calling the supervisory committee another name will not necessarily lead to proper change on its own.
Management
Some of the requirements of the Guideline may not be practical in the current PRC environment. For example, chapter 5 of the Guideline talks about creating a well-established incentive and control mechanism for managerial staff. However, in reality, the design of staff remuneration systems in domestically listed companies is typically restricted by local labour bureaus, the majority shareholder and fellow subsidiaries, which may still be state-owned enterpris (“SOE”) subject to state wage structures.
Regulatory framework
According to the Guideline, minority shareholders can ek legal remedies if they have a grievance. However, for this to happen, there must be a mature legal framework with well-developed business laws, including company and contract laws, and a civil compensation system. However, the current legal system in the PRC may not yet be ready for this. Different provinces may also have different interpretations of the law. Without the protection of the law, minority shareholders remain expod to the risks of being exploited.
Conclusion
The Guideline is undoubtedly a significant step in the right direction. However, achieving good corpor
ate governance requires changes in framework and structure and ultimately, behaviour. Issuing a guideline for participants to follow is easy. We believe that real corporate governance can only materiali with structural and social changes, which in turn can only be cultivated through continuous learning and relevant knowledge, market incentives and a genuine willingness to change. Accordingly, the changes are more likely to be evolutionary than revolutionary. REFERENCES
wifi direct中国证券监督管理委员会, 关于发布《上市公司治理准则》的通知, 证监发 [2002]1号, 二○○二年一月
中国证券监督管理委员会, 关于发布《关于在上市公司建立独立董事制度的指导意见》的通知, 二○○一年八月
The World Bank Group, Corporate Governance: A Framework for Implementation, 21 June 1999 Writers:
Stephen Lee,
KPMG Partner, Partner in Charge of Management Assurance Services
graphicdesignEric Kan
KPMG Manager, specializing in the provision of Management Assurance Services in the PRC
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination
of the particular situation.
© 2002 KPMG, the Hong Kong member firm of KPMG International, a Swiss nonoperating association. All rights rerved. KPMG Hong Kong Web site: hk
The Guideline is basically divided into eight chapters and 95 claus as follows:
Chapter 1 Shareholders and the
General Meeting
Section 1 Shareholders’ Rights Claus 1 – 4
The legal rights of the shareholders
Equal treatment of all shareholders
Section 2 Guidelines for the
General Meeting
Claus 5 –11
The rules and decision making procedures of the General Meeting
Participation of the shareholders in corporate governance
investment banking
Section 3 Related Party
Transactions
jalap
Claus 12 –14
Rules on related party transactions
Rules on the disclosure of related party transactions
Rules on the funding arrangements of related party transactions
Chapter 2 Controlling Shareholders
and Listed Companies Section 1 Guidelines for
Controlling Shareholders
Claus 15 –21
Guidelines on the relationship between controlling shareholders and
listed companies
Rules on the reform of companies proposing to list
Rules on the appointment of the directors and members of the
Supervisory Committee of listed companies
