Corporate Governance Needed Here, There, Everywhere

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Heidrick & Struggles (H&S) have produced a new study on Corporate Governance in China in association with Fudan University in Shanghai. According to their press release, the study found that there is…room for growth in corporate governance in China – as I outlined in an post on Corporate (Non)Governance. So, no surprises there!

The report, based on 15 months work and over 100 questionnaires completed by senior executives, notes the following about corporate governance in China:

    • Boards are characterized by the cultural emphasis on local networks (guanxi), particularly with the government
    • Amongst the companies studied, 72% of board members were sourced through referrals
    • 48% of Chinese state-owned enterprises and private enterprises would not consider employing foreign directors
    • 26% will consider hiring foreign directors, amongst which, 69% expect to do so within three years

Steve Mulljiner, Managing Partner of H&S in China is quoted as saying:

    “This mindset has to change, as China has yet to develop a pool of strong local talent with in-depth experience to bring Chinese companies into international markets”.

Professor Lu Xiongwen from Fudan adds that:

    “Chinese enterprises either don’t trust foreign directors or think it unnecessary to hire foreign talent. Some enterprises are afraid communication with foreign directors would be difficult due to cultural and language barriers.”

On the other side of the coin, foreign firms are lining up to employ Chinese directors, and over 71 percent of those surveyed want to do so as part of their management localization plans. No wonder, when local talent can be so critical to success (as in the case of Alibaba vs. Google and Ebay).

There are no shocks in these findings, but it is worth noting that some Chinese companies are already hiring in international senior management and advisors – and that the listing of big firms such as ICBC will increase the pressure on Chinese boards to take note of stakeholders, and submit to more scrutiny than they might like. Some companies, such as China Netcom, are already doing this, and are helping to open up the previoulsy closed boardroom door (see “Corporate Governance and a Party (Committee) in the Boardroom”).

Just to put things in perspective, the FT also ran a report on corporate governance the other day, and noted that shareholders:

    “lack basic rights which they take for granted in other developed countries” and that directors should “encourage more responsive and responsible boards”.

They were, of course, talking about the US, not China. Remember Enron, anyone? The fact is that where a lot of power and money is focused on a small group of people, effective oversight is needed. In China, and everywhere else in the increasingly global economy.

See news source:

3 Responses to “Corporate Governance Needed Here, There, Everywhere”

  1. Archive » The ICBC IPO. All Part of The Plan.| China Business Blog Says:

    […] d how far the foreign interests are allowed to influence things. The ability to prove good corporate governance will also help give confidence to investors in other deals that are expect […]

  2. Jeremy Gordon Says:

    An interesting article on bank governance and the sacking of a risk advisor for…advising on risk…is here: http://www.iht.com/articles/2006/11/14/business/bank.php?page=3

  3. Archive » SOEs Told To Pay Up| China Business Blog Says:

    […] an in practice. And this is especially true when company accounts are concerned, and while corporate governance leaves a lot to be desired. See news source: Beijing dividend plan for s […]

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