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The Role of Special Board Committees —— China’s Experience. Wu Jinglian State Council Development Research Centre China Europe International Business School 26 February 2004.
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State Council Development Research Centre
China Europe International Business School
26 February 2004
The establishment of special committees made up of independent directors has an important role to play in improving the quality of the board’s work. In recent years, China has implemented a series of reforms to enhance the work of these committees and has achieved clear successes. There are also still many issues that have yet to be fully resolved.
1.1 The function of corporate governance
Corporate governance consists of an entire system of constraints, incentives and balances the objective of which is to maximize company values. It is used to regulate relationships between the interests of the company’s stakeholders including shareholders, creditors, management, staff, suppliers, retailers and consumers.
The function of corporate governance is to manage conflicts of interest:
1.2The two-tier structure of the German model of corporate governance
1.3The single-tier structure of US and British models of corporate governance
(functions are carried out
collectively at meetings)
(a tiered structure
headed by a senior officer)
Utilizing the stock market to strengthen supervision and incentives in relation to the the board of directors
1.4Comparing the advantages and disadvantages of the two structures
1.5 This does not signal the “end of history”
1.6Positive measures for remedying “internal control”
in single-tier structures
2.1Steps taken by the China Securities Regulatory Commission
2.2 The introduction of Hong Kong’s system of independent directors
Utilizing the stock market to strengthen supervision and incentives in relation to the board of directors
2.3 Practical progress
2.4China Unicom’s example
2.5 Standard & Poor’s evaluation of China’s corporate governance
the structure of stock rights has not been sufficiently rationalized
there is too much interference from large shareholders
no transparency of information
boards lack independence and their effectiveness is also inconsistent
investors lack the initiative they should have as parties with rights and interests
3.1 Establishing and perfecting the system of independent directors
3.2All listed companies should establish committees
3.3Enhancing the role of audit committees (board of supervisors)
3.4Synthesize the experience of special committees and independent director committees, and improve working procedures