Monday, February 16, 2009

Improving Central SOE Corporate Governance?

The State Council and SASAC have announced a "breakthrough" in drawing boundaries between the Party and Central SOE Boards of Directors that will reportedly result in greater "scope of authority and independence" for enterprise boards.

According to this article in the Economic Observer, for the past four years, SASAC has been conducting a "trial" of sorts with boards of directors -- which seems surprising since China's Company Law (公司法) already prescribes the purpose and functions of the Board of Directors, Supervisory Board and the Shareholders Meeting.

Perhaps the need for the "trial" has been that things weren't working out as planned. According to an anonymous outside board member interviewed for the article, "the gap between the trial board of directors and a 'real board of directors' is huge." Boards simply do not have the authority to "hire and fire, conduct performance evaluations, and set compensation" as is prescribed under the company law.

However, according to a document released late last year, 《关于董事会试点中央企业董事会选聘高级管理人员工作的指导意见》, the power to appoint each firm's general manager, deputy general manager, chief accountant and board secretary will now fall to the board of directors.

Until now, this duty was handled in combination by SASAC and the Party's Organization Department (i.e. Personnel Department). From this point, the only apparent involvement of the Party will be when the Board of Directors "reports" such appointments to the Party Committee of SASAC.

The document does acknowledge that, while the company law has required that these powers be vested with the Board of Directors in the past, this has not been the case, and it will change. In other words, "we've been breaking the law, but we're gonna stop now".