East Asia & the Pacific

Improving Corporate Board Performance in China

Recent corporate irregularities, including in China, have shown that corporate boards have struggled to contain fraud, excessive risk-taking, and mismanagement, leading to business collapse and in some cases, an industry-wide blowback.

With China’s twin stock exchanges – Shanghai and Shenzhen – among the fastest-growing in the world, regulators have focused on improving corporate board performance of Chinese listed companies to prevent problems and maintain investor confidence. A good board with independent directors who are able to challenge management’s assumptions and safeguard shareholder values is important to a company’s success and viability.

To help Chinese listed companies establish an effective board and implement good corporate governance practices, IFC and the Shenzhen Stock Exchange developed the Chinese edition of a manual for board members. The 75-page book provides an overview of legislative and regulatory requirements and international best practices. Some 6,000 board members and their businesses are expected to benefit from the publication.

“The manual is very suitable for board members of listed companies in China. We recently distributed it to our training participants,” says He Jie, Director of the Training Center of the Shenzhen Stock Exchange. The exchange recently held a three-day training in Haikou on the southern island of Hainan for more than 300 independent directors and independent-director candidates of listed companies.

At the event, Juan Carlos Fernandez Zara, Senior Operations Officer of IFC Advisory Services’ Corporate Governance Program in East Asia and Pacific, recommended that Chinese boards widen their oversight by monitoring strategy and corporate performance, ensuring effective risk management, developing strong management, and maintaining corporate and board values.

China has made significant progress in corporate governance during the last decade and many Chinese companies have recruited independent directors for their boards, but a number of issues remain. For example, board subcommittees focusing on risk, audit, and other matters have been established but, in many cases, have not played their part because of a compliance-oriented business culture. In some cases, independent directors’ views are not valued, and benefits of an effective board, especially in the areas of strategic oversight and control, remain unrecognized.

The training is part of the IFC China Corporate Governance Project’s collaboration with the Shenzhen Stock Exchange, now on its fourth year.

As of May 2012, the Shenzhen Stock Exchange had 1, 472 listed companies, with a total market capitalization of about 7.5 trillion Chinese yuan, or roughly $1.2 trillion.

Click here to download the Chinese edition of the Effective Board: Manual for Board Members report.