Supervisory Committee and Shareholders
Supervisory Committee (Mainland China)
Supervisory Committees are found in Mainland China; they do not form part of the corporate governance landscape in Hong Kong.
Improvement of internal oversight is key to improving the quality of corporate governance and reducing the risk of governance failures. In Mainland China, the key responsibility of a supervisory committee is to monitor the activities of the board and CEO, as well as to monitor financial affairs and business activities on behalf of shareholders. In the course of its monitoring, the supervisory committee may ask directors or management to rectify any breaches of company policy or procedure that harms the company’s interests. According to Chinese Company Law, a limited liability company or a joint stock company shall have a Supervisory Committee. For smaller companies or companies with only a few shareholders, supervisors may be appointed without setting up a formal committee. According to the Code of Corporate Governance for Listed Companies in China, all listed companies should establish a Supervisory Committee.
Supervisory Committee Structure
For details, please refer to:
Work of the Supervisory Committee
Supervisory Committee Responsibilities
According to China’s Company Law, the responsibilities of the Supervisory Committee include:
• Reviewing the financial affairs of the company;
• Monitoring the performance of directors and senior officers; removal of directors or senior officers in the case of violation of laws, administrative regulations or articles of association;
• Requiring rectification from directors or senior officers if they cause harm to company interests;
• Proposing interim shareholder meetings; convening shareholder meetings when the board of directors does not do so as required by law;
• Submitting proposals at the shareholders meeting;
• Filing suit against directors or senior officers if they harm the company while performing their duties in violation of laws, administrative regulations or the articles of association;
• Exercising other authorities set out in the articles of association.
In addition, supervisors may attend board meetings and may propose issues to be determined by the board of directors. A supervisory committee or the supervisors of a company that does not have a committee may conduct investigations upon discovery of any unusual operations of the company. A supervisory committee of a wholly state-owned company may exercise the first three powers in the above list as well as other powers set out by the State Council.
Supervisory Committees of State-Owned Enterprises
According to the regulation "State-Owned Enterprises Supervisory Committee Interim Provisions", supervisory committees of key state-owned enterprises have as their core responsibility to monitor financial condition, to monitor financial activities and acts of management, and to perform the following duties:
For state-owned enterprises, the supervisory committee was introduced to monitor management in 2007. For these companies, the responsibilities of the supervisory committee have gradually changed, from simply monitoring last year’s activities to monitoring those of the current year and submitting the annual inspection report within the first half of the following year. This approach assumes daily supervision, where the committee conducts a focused annual inspection of the company’s activities together with the annual financial audit. With respect to monitoring of the current period, the committee strengthens the monitoring of compliance with state-owned assets supervision and administration regulations, evaluates the implementation of enterprise internal controls, and assesses compliance of major decisions and procedures. The committee may also integrate the financial inspection with the annual external audit so as to focus on key points in the course of inspection by referencing and using the audit result of its external auditor.
CFA Institute China Corporate Governance Study
In August/September 2006, in order to gain a better understanding of governance issues in China, the CFA Institute Centre for Financial Market Integrity conducted a detailed study of Chinese governance practices. As part of the study, a survey of the Institute’s members investing in or having interest in Chinese companies was carried out to obtain opinions and views. Findings were based on 475 responses. Respondents felt that because independent directors are a requirement in China, and because independent directors are becoming more prevalent, the role of the supervisory board has become increasingly unclear. The survey observes that duplicated functions between independent directors and the supervisory committee are costly and inefficient. For details, please refer to: China Corporate Governance Survey
Governance Report on Top 100 Listed Chinese Companies
Shareholders (Mainland China)
Shareholders in China: An Overview
State-owned shares are generated by investment in companies made by the state. On behalf of the state, the State Council and local governments have investors’ rights and obligations to the invested companies in accordance with law and regulation.
Listed companies owned by the state are the lion’s share of Mainland China's capital market, with more than 1,100 companies listed as A Shares on an exchange. As of 2008, listed companies controlled by central enterprises represent 37 percent of total market capitalization, 42 percent of revenues and 30 percent of profits of all holding companies (Source: Extract of speech of Rongrong Li, Director of State-owned Assets Supervision and Administration Commission of the State Council (SASAC), made at 8th China Corporate Governance Forum, December, 2009.) See this link for the abstract of the speech (in Chinese only).
Corporate Governance Code
OECD Guidelines for Governance of State-Owned Enterprises
Shanghai Stock Exchange Report on Governance of State-Owned Enterprises
How to improve the corporate governance of state-controlled companies has long been a focus for state regulators. The Shanghai Stock Exchange (SSE) has published its Report on Corporate Governance in China on an annual basis since 2003. Its 2006 Report, which focused on state-controlled listed companies, analyzes corporate governance at these companies and makes recommendations. The report points out that the corporate governance at China's state-controlled companies is observed more in form than in substance; that progress in China's corporate governance is moving backward rather than forward; that government forces are more powerful in this respect than market forces; that insiders may have more power and control at these firms than boards of directors or shareholders; and that the hierarchy of approval is often more powerful than supervision or regulation and enforcement. In reaction to these findings, the report provides ten suggestions for state-controlled, listed companies to improve their corporate governance. The Report includes a history of the sector and recent reforms, as well as a review of related-party transactions, non-tradable shares, and comparisons with state-owned enterprises in other counties.
Laws & Regulations for State-Owned Enterprises
Laws and regulations regarding state-owned shares and management of state-owned assets:
NPC: Company Law of the People's Republic of China (In Chinese only)
NPC: Security Law of the People's Republic of China (In Chinese only)
State Council: Acting Regulations on State-owned Assets Supervision (In Chinese only)
CSRC: Code of Corporate Governance for Listed Companies in China (In Chinese only)