It is well known that smaller shareholders and independent directors and supervisory bodies have very limited voices in supervising listed State-owned enterprises (SOEs) in China since the State usually controls the largest stake in such firms.
But thanks to a set of principles drafted by the China Securities Regulatory Commission (CSRC) covering corporate governance, things could be improved in the near future, according to Tong Daochi, a CSRC official, who is attending the 2001 Chinese Corporate Governance Conference which runs till tomorrow.
The principles, if approved, will clarify the rights and duties of shareholders, directors and management, maintain the independence of the board, establish and guide the carrying out of effective disclosure standards, and guarantee equal treatment of all shareholders.
Dao did not, however, disclose the timetable for the institution of the principles.
One important item is that the number of independent board members in a listed company will be increased.
According to the draft of the Shanghai Stock Exchange (SSE) Guidelines for Corporate Governance of Listed Companies, there will be at least two independent board members in each listed company, who will make up at least 20 percent of the total number of board members in the company.
The guidelines drafted by SSE are the major source for the principals that the CSRC is drafting, Hu Ruyin, director of the research centre of the SSE, said.
"If such a practice is really implemented, it is expected that the supervision of listed companies in China will be more effective,'' said Yao Qingtao, a securities analyst.
Yao said so far, many listed companies have only one independent director, and "some of them have strong connections with the listed companies they are part of, which reduces their independence from those companies.''
"The supply of properly trained independent directors is, however, still limited,'' said CSRC's Dao.
This year more trained professionals, especially those from organizations that deal with the market, such as accounting or law firms, will be encouraged and trained to act as independent directors, Dao added.
Also, the CSRC is negotiating with the China Insurance Regulatory Commission to introduce director liability insurance to protect directors, who will have more say in supervising listed companies.
"The principles, however, are basically self-regulating ones,'' Dao said, admitting there are difficulties in trying to set up a perfect governance system if the overall management system of SOEs is not reformed.
(China Daily 04/11/2001)
