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CORPORATE GOVERNANCE in China (7 MAIN CHAPTERS (Directors and board of…
CORPORATE GOVERNANCE
in
China
Code of Corporate Governance For Listed Companies in China (hereinafter ‘the Code’).
The Code is broadly based on the OECD Principles of Corporate Governance
The Code is aimed at listed companies and addresses ‘the protection of investors’ interests and rights, the basic behaviour rules and moral standards for directors, supervisors, managers, and other senior management members of listed companies’
In June 2003, at least one-third of the board should be independent directors
Neoh (2003) stated there are at least two areas that must be addressed for the market to move away from short-termism and for good governance to take root
One is for investors to have a longer term time horizon
Second, for the system of management succession
to be addressed
7 MAIN CHAPTERS
Supervisors and supervisory board
Need to supervise effectively the directors and managers and to examine knowledgeably the company’s financial matters
Accountable to shareholders and its duties
Comprise individuals with ‘professional knowledge or work
experience in such areas as law and accounting
Should be provided with appropriate information to enable them to do their job effectively
Supervisory board’s meetings should be minuted.
Performance assessments and incentive and disciplinary systems
Performance and compensation of the directors and supervisors should be reported to the shareholders’ meeting.
The Code states that
the compensation for management personnel
should be linked to both the company’s performance and the individual’s work performance
Independent directors and supervisors should be evaluated by a combination of self-assessment and peer review
Directors and board of directors
They should also also devote adequate
time to their role as director and to attending board meetings
Board of director is accountable to shareholders and ‘shall treat all shareholders equally and shall be concerned
with the interests of stakeholders’
They should ‘faithfully, honestly, and diligently perform their duties for the best interests of the company and all shareholders
They should meet periodically and have a pre-set agenda, with timely and clear information about the agenda items being sent to all the directors
They should be suitably qualified with appropriate
skills and knowledge
Independent directors should be independent of the company and its major shareholders, and should act in good faith and perform their duties diligently
Directors should attend appropriate training sessions to familiarize themselves with their directorial duties and responsibilities
It is recommended that that various committees of the board be established, such as a corpoate
strategy committee, a remuneration and appraisal committee, an audit committee, and a nomination committee
Independent directors should be in the majority on these committees
Audit, nomination, and remuneration/appraisal committees should be chaired by an independent director
Audit committee, at least one independent
director should be an ‘accounting professional’.
Listed company and its controlling shareholders
The controlling shareholders initially nominate the candidates for directors and supervisors on the basis of their professional skills, knowledge, and experience
The listed company
should be able to act independently of the controlling shareholders
Section of the Code deals with a protocol for how the controlling shareholders should behave when an enterprise is being restructured or reorganized prior to listing
Financial and accounting management systems of the listed company should be independent from the controlling shareholders
Stakeholders
Company should respect the legal rights of the various
stakeholder groups and provide them with information as appropriate
Employees are encouraged to provide feedback on various issues that might affect them by direct communication with the board of directors, the supervisory board, and management personnel
Shareholders and shareholders’ meetings
Companies should establish communication channels with shareholders and shareholders should be informed of significant matters that affect the company
Electronic communications may be used to help
increase the number of shareholders participating
All shareholders are treated fairly
Shareholders may vote in person or may
appoint a proxy to vote on their behalf
Information and disclosure and transparency
Company should make disclosure
about its state of corporate governance and the reasons why it may differ from the Code
Company should disclose information relating to the shareholding distribution in the company