The supervisor is considering the feasibility of introducing
institutional investors into the boards of listed companies, an
endeavor to optimize the management structure of those companies,
according to yesterday's Shanghai Securities News.
The unified guidelines are impending, based on the Shanghai and
Shenzhen bourses' guidelines for their members to strengthen inner
management.
Currently, the inner supervisory system of China's enterprise is
comprised of the supervisory board, and independent board director,
and internal censorship. They are in charge of examining,
supervising and assessing the effect and efficiency of "the board,
the managing group, and the employees in acting enterprise inner
management."
However, the absence of effective supervisory mechanisms has led
to defective central management. The Shanghai and Shenzhen bourses
have already required their listed firms to engage certificated
public accountants in an effort to evaluate their financial
management.
"To bring institutional investors onto the board will generate
more direct effect in improving management", said Ding Shengyuan,
deputy principal of China Galaxy Securities Co Ltd's research
center, "the pressure from public individual investors on the
institutional investors will be transferred to listed companies
once they are on those companies' boards."
Ding added that most mature European markets applied this
approach, by which the institutional investors with integrated
influence from individual investors counterbalanced the dominant
shareholders.
"Institutional investors can play a role as independent board
directors in terms of constraining certain board directors from
trampling shareholders' interests." Ding suggested.
On the contrary, some insiders doubted the actual effect of
allowing institutional investors access to listed companies board.
The current circulating market value is no more than 40 percent of
the total market value in China. As a result, institutional
investors are rather limited in their influence.
Specifically in funds, Hu Lifeng, the chief analyst for China
Galaxy Securities Co Ltd, pointed out that amongst securities
investment funds, fund holders, fund management firms, and trusted
banks, representing institutional investors, getting a seat on the
board can be difficult.
Institutional investors are greenhorns in the business of
managing companies, and they have to be careful of sinking into the
trivialities involved in managing companies rather than sticking to
their core business—investment, Hu warned.
(Chinadaily.com.cn November 7, 2007)
