BOARDS OF DIRECTORS AT CHINA'S SOEs:
THE ROLE OF, AND CONDITIONS FOR SERVING AS,
DIRECTORS
AND RELATED ISSUES
（KEY POINTS OF SPEECH）
STATE COUNCIL DEVELOPMENT RESEARCH CENTRE
CONTENTS
I
CONDITIONS FOR DIRECTORS AND BOARDS OF DIRECTORS TO EXERCISE THEIR
FUNCTIONS: CLEAR RESPONSIBILITIES AND SYSTEMIC IMPROVEMENTS
II
STRUCTURAL ADJUSTMENTS AND CREATING THE STRUCTURAL CONDITIONS FOR
BOARDS OF DIRECTORS TO EXERCISE THEIR FUNCTIONS
III
BOARDS OF DIRECTORS AT LARGE SOLELY STATE-OWNED COMPANIES
IV THE RESPONSIBILITIES OF, AND CONDITIONS FOR SERVING AS, DIRECTORS AT SOEs
一、 I CONDITIONS FOR DIRECTORS AND BOARDS OF DIRECTORS TO EXERCISE THEIR
FUNCTIONS: CLEAR RESPONSIBILITIES AND SYSTEMIC IMPROVEMENTS
1．DIRECTORS AND BOARDS OF DIRECTORS HAVE AN IMPORTANT ROLE IN
GOVERNANCE
REFORM
DIRECTORS HAVE A FIDUCIARY RESPONSIBILITY TOWARDS THE SHAREHOLDERS。
DIRECTORS AND BOARDS OF DIRECTORS CARRY OUT SUPERVISION AND
ADMINISTRATION AND OTHER SUPPORT FUNCTIONS AT COMPANIES:
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THEY EMBODY THE ENTERPRISE AND ALSO HAVE A MONITORING ROLE;
THEY SHOULD HAVE A COMPREHENSIVE UNDERSTANDING OF THE COMPANY'S
OPERATIONS, WITHOUT INTERFERING IN THE RUNNING OF DAY-TO-DAY OPERATIONS;
THEY SHOULD FOCUS ON LONG-TERM TRENDS AND THE SHORT-TERM SITUATION;
THEY SHOULD MONITOR THE SITUATION LOCALLY AS WELL AS ELSEWHERE,
INCLUDING INTERNATIONALLY;
THEY SHOULD FOCUS ON BUSINESS DEMAND, RETURN ON CAPITAL AS WELL AS
THEIR RESPONSIBILITIES TOWARDS THE COMMUNITY AND THEIR STAFF。
2.
SYSTEMIC CONSTRAINTS ON THE ROLE OF DIRECTORS AND BOARDS OF DIRECTORS
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DO THEY UNDERSTAND THE MEANING OF CORPORATE GOVERNANCE, DIRECTORS'
RESPONSIBILITIES AND MUTUAL RELATIONSHIPS？
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LEGISLATION: THE STRUCTURE OF GOVERNANCE AT SOEs DEPENDS ON DIFFERENT
LEGISLATIVE FRAMEWORKS:
――
ENTERPRISES REGISTERED UNDER THE LAW ON ENTERPRISES HAVE NO
BOARDS
OF DIRECTORS;
―― THOSE REGISTERED UNDER COMPANY LAW DO HAVE BOARDS OF DIRECTORS,
LISTED COMPANIES SUBJECT TO LEGAL CONSTRAINTS;
―― THE INFLUENCE OF SPECIAL LAW, RULES ON "DEBT FOR EQUITY COMPANIES"。
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STRUCTURE, PERSONS SERVING ON BOARD OF DIRECTORS DOUBLING AS SENIOR
MANAGERS , CONFLICT BETWEEN SOLELY STATE-OWNED PARENT COMPANIES
AND LISTED SUBSIDIARIES;
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ENVIRONMENT
―― BUSINESS CULTURE AND CREDIT，
―― MARKETS，ESPECIALLY THE CAPITAL MARKET,
―― HUMAN RESOURCES, MANAGERS AND DIRECTORS,
―― JUDICIAL SYSTEM .
STATE SHAREHOLDER BEHAVIOUR AND DECISION-MAKING AT SOEs, WITHOUT EFFECTIVE
SHAREHOLDERS THERE ARE NO EFFECTIVE BOARDS OF DIRECTORS。
3.
IMPROVING GOVERNANCE OF SOEs AND EXERCISING DIRECTORS' FUNCTIONS,
NEED FOR SYSTEMATIC PROJECTS
SYSTEMATIC PROJECTS ARE NECESSARY BECAUSE MANY ISSUES ARE INVOLVED;
PARTICULAR ISSUES TO PROMOTE, LISTED COMPANIES AND SOLELY STATE-OWNED
ENTERPRISES;
AMENDING THE LAW;
IMPROVING THE ENVIRONMENT, INCLUDING EDUCATION AND TRAINING.
II、 STRUCTURAL ADJUSTMENTS AND CREATING THE STRUCTURAL CONDITIONS FOR
BOARDS OF DIRECTORS TO EXERCISE THEIR FUNCTIONS
1．IF CORPORATE STRUCTURES ARE COMPLEX AND CONTRADICTORY, IT IS VERY DIFFICULT
FOR BOARDS OF DIRECTORS TO EXERCISE THEIR FUNCTIONS.
2．IMPORTANT WAYS OF RESOLVING CONFLICTS BETWEEN SOLELY STATE-OWNED PARENT
COMPANIES AND LISTED COMPANIES: MARKET FLOTATION OF THE PARENT COMPANY
SERIOUS CONFLICTS BETWEEN SOEs WHICH HAVE STRATEGIC OR MANAGERIAL
RESPONSIBILITIES IN CERTAIN SECTORS AND LISTED COMPANIES OF WHICH THEY ARE THE
CONTROLLING SHAREHOLDER, MAKING IT DIFFICULT TO IMPROVE THE GOVERNANCE
STRUCTURE OF PARENT COMPANY AND LISTED SUBSIDIARY
REASONS FOR: "SEPARATING LEVELS", REDUCING ADMINISTRATIVE INTERFERENCE,
MANAGING RESIDUAL NON-PERFORMING ASSETS ETC
POSSIBLE SOLUTIONS: CHANGE FROM MARKET FLOTATION OF SUBSIDIARY COMPANY TO
MARKET FLOTATION OF PARENT COMPANY
CONDITIONS:
① PARENT COMPANY MUST TAKE STRATEGIC RESPONSIBILITY FOR BUSINESS
DEVELOPMENT
② SIGNIFCANT NUMBER OF BUSINESS LINKS RETAINED BETWEEN LISTED SUBSIDIARY
AND ENTERPRISES WITH RESIDUAL ASSETS AND PARENT COMPANY, THE COORDINATION
EFFECT。
NECESSARY POLICY: DIVESTMENT OF NON-PERFORMING ASSETS, CENTRALISED TRUSTEESHIP,
STATE'S SHAREHOLDING AT LISTED COMPANIES SHOULD BE DIVIDED BETWEEN DIFFERENT
AGENCIES (CF. JAPAN NATIONAL RAILWAYS)
3．CLARIFICATION OF STATUS,
STRUCTURAL ADJUSTMENT, CREATING EFFECTIVE
STATE ASSET MANAGEMENT COMPANIES
AT CENTRAL AND PROVINCIAL/CITY LEVEL, SOME STATE ASSET MANAGEMENT
COMPANIES WILL REMAIN:
―― OFTEN OWING TO NEED FOR GOVERNMENT TO MANAGE MANY SOEs OR STATE
SHAREHOLDINGS;
―― THE ENTERPRISES IN WHICH THEY HOLD SHARES OPERATE IN VERY DIVERSE SECTORS;
―― AT THE COMPANIES IN WHICH THEY HOLD SHARES THEY ONLY ASSUME RESPONSIBILITY
FOR FINANCIAL SUPERVISION AND ADMINISTRATION, ASSET STRUCTURE, ADJUSTMENT
AND THE PROMOTION OF REFORM;
―― SOMETIMES THEY TAKE ON TASKS ASSIGNED TO THEM BY THE GOVERNMENT.
OTHER COUNTRIES HAVE SIMILAR COMPANIES, E.G. ÖIAG IN AUSTRIA。
PROPER STATUS FOR COMPANIES, STRUCTURAL ADJUSTMENT, EITHER TOO MUCH OR
TOO LITTLE POWER UNSATISFACTORY
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WILL NORMALLY BE A SOLELY STATE-OWNED COMPANY REGISTERED UNDER COMPANY
LAW;
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CLARIFICATION, IN THE LAW OR REGULATIONS, THAT THEY ARE ONLY RESPONSIBLE
FOR FINANCIAL SUPERVISION AND ADMINISTRATION AND ADJUSTING THE ASSET
STRUCTURE AT THE SUBSIDIARIES;
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ASSIGNED FULL POWERS AT THE COMPANY, ENABLING THEM TO PROPERLY ASSUME
THEIR RESPONSIBILITIES;
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CLARIFICATION THAT COMPANIES ARE RESPONSIBLE FOR THE RETURN OF ASSETS,
IMPLEMENTING A SYSTEM THAT ENCOURAGES THE ADOPTION OF MARKET PRINCIPLES.
WHEN THERE ARE MANY ASSET MANAGEMENT COMPANIES, SOME CAN BE MERGED
AS PART OF THE REFORM OF THE SOEs.
4．SPECIAL STRUCTURAL PLAN FOR SPECIAL COMPANIES
IF A SPACE COMPANY, PARENT COMPANY SOLELY STATE-OWNED, ITS
SUBSIDIARIES COULD BE WHOLLY-OWNED SPACE INDUSTRY COMPANIES OR
DIVISIONAL ORGANISATIONS, WHILE THE LISTED COMPANIES WOULD BE ENGAGED
IN COMPETITIVE BUSINESS.
III
BOARDS OF DIRECTORS AT LARGE SOLELY STATE-OWNED COMPANIES
1． ALL LARGE SOLELY STATE-OWNED ENTERPRISES MUST SET UP BOARDS OF
DIRECTORS
THOSE OF CHINA'S LARGE SOLELY STATE-OWNED ENTERPRISES THAT ARE
REGISTERED UNDER THE LAW ON ENTERPRISES AND OPERATE A "MANAGING
DIRECTOR RESPONSIBILITY SYSTEM" DO NOT HAVE BOARDS OF DIRECTORS;
THOSE THAT ARE REGISTERED UNDER COMPANY LAW DO HAVE BOARDS OF
DIRECTORS, BUT BECAUSE THE FUNCTIONS OF THE BOARD CHAIRMAN AND THE
MANAGING DIRECTOR ARE CONFUSED AND THE BOARD CHAIRMAN ACTS AS
CORPORATE REPRESENTATIVE, THE BOARD OF DIRECTORS OFTEN CANNOT PERFORM
EFFECTIVELY.
REASONS WHY LARGE SOLELY STATE-OWNED COMPANIES SHOULD SET UP
BOARDS
OF DIRECTORS:
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THE RESPONSIBILITIES AT LARGE COMPANIES ARE GREAT AND THE
ENVIRONMENT
IS COMPLEX AND SUBJECT TO CHANGE;
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BOARD DECISIONS ARE TAKEN COLLECTIVELY ON THE BASIS OF INDIVIDUAL
ACCOUNTABILITY;
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THE MANAGING DIRECTOR IS MONITORED BY THE BOARD, BUT IS ALSO VESTED
WITH FULL POWERS, WHICH IS GOOD FOR EFFICIENCY;
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IF THE FIDUCIARY RESPONSIBILITY TOWARDS THE STATE AS OWNER OPERATES
PROPERLY, THIS HELPS TO CREATE A MECHANISM OF INCENTIVES AND
CONSTRAINTS THAT REFLECTS THE CORPORATE REALITY;
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ACCORDING TO THE "REGULATIONS", THE COMMISSION IS MAINLY RESPONSIBLE
FOR SUPERVISING AND ADMINISTERING STATE ASSETS, IT IS NOT RESPONSIBLE
FOR OPERATIONAL MANAGEMENT.
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IT ACCORDS WITH INTERNATIONAL PRACTICE.
建 IT IS RECOMMENDED THAT ENTERPRISES REGISTERED UNDER THE LAW ON
ENTERPRISES SHOULD, IN PRINCIPLE, GRADUALLY CONVERT TO SOLELY STATEOWNED COMPANIES.
2.
ISSUES RELATING TO THE STRUCTURE, FUNCTIONS AND RESPONSIBILITIES OF
BOARDS OF DIRECTORS AT SOLELY STATE-OWNED COMPANIES
COMPOSITION OF THE DIRECTORS:
THE MAIN COMPONENTS ARE THE OUTSIDE OR NON-EXECUTUVE DIRECTORS;
THE STATE AGENCIES COULD NOMINATE DIRECTORS TO THE BOARD, WHO
WOULD
HAVE SPECIAL RESPONSIBILITIES TO THE STATE AGENCIES, IN THE SAME WAY
THAT NOMINATED OR RELATED DIRECTORS HAVE A SPECIAL RELATIONSHIP WITH
THE SHAREHOLDERS. NOT ALL DIRECTORS RECOMMENDED OR APPROVED BY THE
STATE AGENCIES WILL BE NOMINATED DIRECTORS.
RESPONSIBILITIES OF DIRECTORS:
LOYALTY AND CONSCIENTIOUSNESS (DUTY OF CARE);
NOMINATED DIRECTORS HAVE EVEN MORE RESPONSIBILITIES TOWARDS THE
STATE
AGENCIES, BUT THIS MUST NOT LEAD THEM TO NEGLECT THEIR BASIC
RESPONSIBILITIES.
THE FUNCTIONS OF A BOARD OF DIRECTORS
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IN ACCORDANCE WITH THE AUTHORITY CONFERRED ON IT BY THE STATE AGENCY,
TO MAKE IMPORTANT POLICY DECISIONS FOR THE COMPANY;
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TO COOPERATE WITH AND EXERCISE CHECKS AND BALANCES WITH RESPECT TO
THE HIGHER-ECHELON STAFF;
TO PROVIDE GUIDANCE AND SUPERVISION IN MONITORING AND SETTING UP
SYSTEMS IN SUCH AREAS AS CORPORATE STRATEGY, APPRAISAL, PERSONNEL
MANAGEMENT AND SALARIES, AUDITING, RISK CONTROLS, COMMUNITY RELATIONS
AND INFORMATION DISCLOSURE.
ESTABLISHING A SYSTEM OF BOARD OF DIRECTORS' COMMITTEES, INCLUDING
AUDIT AND SALARIES COMMITTEES MADE UP MAINLY OF OUTSIDE DIRECTORS.
3.
ESTABLISHING THE IDEA OF GOVERNANCE, CLARIFYING RESPONSIBILITIES,
CONFERRING FULL POWERS, STRENGTHENING THE SYSTEMS
CONFERRING FULL POWERS ON BOARDS OF DIRECTORS AND STRENGTHENING
THE
SYSTEMS AND RULES ARE THE BASIS FOR ENABLING A BOARD OF DIRECTORS TO
EXERCISE ITS FUNCTIONS EFFECTIVELY.
BASIC SYSTEMS TO BE HIGHLIGHTED:
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DUTIES OF THE DIRECTORS, BOARD OF DIRECTORS, DIRECTORS' COMMITTEES,
AND BOARD SECRETARIAT,
AGENDA FOR MEETINGS AND RESOLUTIONS AND THE RULES ON RESOLUTIONS,
CONDITIONS FOR SERVING AS A DIRECTOR, SALARIES/ BONUSES
SYSTEM OF APPRAISAL FOR DIRECTORS AND THE BOARD OF DIRECTORS
4．4. PREVENTING BOARDS OF DIRECTORS FROM BECOMING INEFFECTIVE, THE KEY
LIES WITH THE COMMISSION
IV THE RESPONSIBILITIES OF, AND CONDITIONS FOR SERVING AS, DIRECTORS AT
SOEs
1．RESPONSIBILITIES
THE RESPONSIBILITIES OF DIRECTORS AT STATE-OWNED COMPANIES ARE THE SAME
AS THE BASIC RESPONSIBILITIES OF DIRECTORS AT OTHER COMPANIES,
THOUGH THERE ARE SPECIAL FEATURES:
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NEED TO FOCUS ON HELPING COMPANIES ESTABLISH AND IMPROVE THEIR
SYSTEM
OF RESPONSIBILITIES FOR CORPORATE GOVERNANCE;
――
IF THE BOARD CHAIRMAN DOUBLES AS MANAGING DIRECTOR, THEIR DUTIES
ARE
EASILY CONFUSED AND
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BOARD MEETINGS CANNOT BE PROPERLY ARRANGED;
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RESPONSIBILITY FOR ENSURING A BALANCEED RELATIONSHIP BETWEEN STAFF,
SHAREHOLDERS AND CREDITORS:
―― STAFF INTERESTS CAN EASILY BE OVEREMPHASISED, THIS HAS TO DO WITH
CONDITIONS AND STATUS.
IMPROVING THE KNOWLEDGE OF THE COMPANY'S HIGHER-ECHELON STAFF AND
RESOURCES STRUCTURE, A PRIORITY TASK FOR HIGHER-ECHELON STAFF
2.
CONDITIONS FOR SERVING AS DIRECTORS
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DUE DILIGENCE AND CARE (DUTY OF CARE），E.G.：
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EXERCISING DILIGENCE AND CARE TO THE BEST OF ONE'S ABILITY
THOSE WITH PARTICULAR SKILLS AND PROFESSIONAL QUALIFICATIONS NEED TO
EXERCISE EVEN GREATER DILIGENCE (PRINCIPLE OF DIVISION OF
RESPONSIBILITIES).
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DUTY OF LOYALTY OR PROBITY，
E.G.:
ABIDING BY THE LAW AND REGULATIONS,
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WHERE AN ISSUE NOT COVERED BY THE LAW, NEED TO BEHAVE HONESTLY
(3)
KNOWLEDGE AND SKILLS
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STRATEGIC JUDGEMENT, SENSITIVITY TO CHANGES, ORGANISATIONAL
AWARENESS, STRATEGIC AWARENESS.
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DECISION-MAKING ABILITY, SKILL IN IDENTIFYING PROBLEMS, COMMON
SENSE,
SKILL AT PROPOSING SOLUTIONS.
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INFORMATION GATHERING ABILITY, RESOURCEFULNESS, DISCERNMENT IN
EVALUATING INFORMATION.
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ABILITY TO COMMUNICATE, ABILITY TO LISTEN AND SPEAKING SKILLS,
LITERACY,
RECEPTIVENESS TO FEEDBACK.
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ACCESSIBILITY, SELF-CONFIDENCE, ABILITY TO COORDINATE, FLEXIBILITY
WILLINGNESS TO LEARN, SENSITIVITY.
ACHIEVES RESULTS, SENSITIVE, WILLING TO DELEGATE, SETS AN EXAMPLE,
MOTIVATED, SHOWS PATIENCE ETC.
OF THE ABOVE SIX POINTS, THE FIRST TWO HAVE MOST TO DO WITH
PROFESSIONAL KNOWLEDGE。
3.
RESOLVING THE PROBLEM OF THE SHORTAGE OF POTENTIAL
DIRECTORS
DEFINING THE SPECIFIC RESPONSIBILITIES OF, AND
CONDITIONS FOR SERVING AS, DIRECTORS
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ENSURING A SUITABLE COMPOSITION OF THE BOARD OF
DIRECTORS
EDUCATION AND TRAINING
THANK YOU!