On the afternoon of December 11th, The 2th Theme Forum of China Corporate Governance Experts 50 Forum&The 15th China Corporate Governance Forum-Seminar on High Quality Development of Chinese Listed Companies was held successfully in Beijing.

 

The forum is organized by China Corporate Governance Experts 50 Forum, China Enterprise Reform and Development Society, CITIC Reform and Development Research Foundation, Research Center for Corporate Governance and Enterprise Development, Beijing Normal University, BNU Business School, undertook by the Research Center for Corporate Governance and Enterprise Development of Beijing Normal University and guided by China Association of Listed Companies.

 

 

Mr. Chu Xuping, Executive Director of Academic Committee of China Corporate Governance Experts 50 Forum and Former Director of Research Center of State-owned Assets Supervision and Administration Commission of the State Council chaired the meeting.

 

The forum released three latest corporate governance research results presided over by Professor Gao Minghua, Director of the Research Center of Corporate Governance and Enterprise Development of Beijing Normal University and Executive Director of the Academic Committee of China Corporate Governance Experts 50 Forum. And they are: Quality Index Report of Chinese Listed Companies No.1 (2021), China Listed Company Governance Sub-Index Report No.20 (2021)and Governance Index of Listed Companies in China's Financial Industry No.2 (2021). Among that, Quality Index Report of Chinese Listed Companies No.1 (2021) is the first evaluation report targeted on the quality of listed companies and presented in the form of index.China Listed Company Governance Sub-Index Report No.20 (2021) is the 20th report of its kind and we have established the largest Chinese listed corporate governance sub-index database.

 

 

 

The launching of the new book. From the left: Gao Minghua, Ji Xiaonan, Yang Kaisheng, Song Zhiping, Kong Dan, Fu Chengyu, Zheng Weiliang

 

Kong Dan, Chairman of the CITIC Reform and Development Research Foundation, Former Chairman of CITIC Group and Adviser to the China Corporate Governance Experts 50 Forum, said that, “It is proposed in this year's Central Economic Work Conference that we are facing pressure in economic development next year and we should seek progress in stability in economic development next year. More importantly, the quality of the development of listed companies is directly related to the quality of economic development.”

 

 

 

“The capital market is an important boost to China's economic development, the listed company is the cornerstone of the capital market, and the listed company governance is fundamental for the work of the listed company,” said Song Zhiping, President of China Association of Listed Companies, President of China Enterprise Reform and Development Society and Director of the Academic Committee of China Corporate Governance Exoerts 50 Forum. He also said that improving the quality of listed companies is an important work of capital market in the future. In order to do a good work in corporate governance, we should first ensure the rights and interests of all shareholders, which is the core; and then the second is to ensure the independence of the company; the third is to standardize information disclosure; the fourth is to let the board of directors play a central role in corporate governance; the fifth is to respect the interests of stakeholders and let them share the company's development; and the sixth is to give full play to the role of internal control mechanisms.   

 

 

 

Fu Chengyu, Former Chairman of Sinopec Group and Consultant of China Corporate Governance Experts 50 Forum believed that “the level of corporate governance determines the ability of sustainable development of enterprises”. He believed that corporate governance was essentially the responsibility of entrepreneurs and that Chinese entrepreneurs needed to change their thought. First, we need to turn the external pressure into our own internal driving force, and transform the "requirements" of laws and government into their own demand.Second, we need to see corporate governance as a requirement in responding to government regulation and meeting the needs of market publicity, transforming into the needs of the company's own long-term interests and sustainable development and development capacity.

 

 

 

“We must always do better,” Yang Kaisheng, Former President of Industrial and Commercial Bank of China, Adviser of China Corporate Governance Experts 50 forum said. He also added that, “China is exploring a way for Chinese enterprises to develop. I think it is a right way to go and we must keep exploring. We should see it as a process, not a goal and move forward with steady steps.”

 

 

 

After analyzing many cases of corporate governance, Ji Xiaonan, Invited Vice President of China Association for the Promotion of International Multinational Companies, Former Chairman of The State Council's state-owned Key Large Enterprises Supervision Committee, Consultant of China Corporate Governance Experts 50 forum believed that we needed to think of the function of corporate governance, what problems it can address, what kind of effect can we achieve if we don’t consider supervision and how to strength supervision.

 

 

 

Liu Yingqiu, Former President of the Graduate School of The Chinese Academy of Social Sciences and An Expert of China Corporate Governance Experts 50 Forum put up suggestions on the uneven governance of listed companies. He proposed three suggestions: First, we need to continue to deepen structural reform and solve problems in development through reform. Second, we need to improve the modern enterprise system, management and operation for actual controller of listed companies, as well as related technology education and training efforts, mainly for private listed enterprises. Third, we need to generally improve the quality of governance, operation, innovation and development of listed companies.

 

 

More than 50 experts and entrepreneurs held a heated discussion on the topics of “Corporate Governance and the High-quality Development of Chinese Listed Companies” and "Social Responsibility and the High-quality Development of Chinese listed companies" through an online and offline combination.

 

 

 

Nearly 50 online and offline experts offered suggestions on how to improve the high-quality development of listed companies

 

 

Zhou Ning, Member of Standing Committee of Xinhua Economic Information Daily, Senior Editor and an Expert of China Corporate Governance Experts 50 Forum presided over the keynote speech

 

 

 

Ju Jingwen, Research of Institute of Economics, Chinese Academy of Social Sciences, an Expert of China Corporate Governance Experts 50 Forum presided over the expert discussion

 

 

 

Professor Cui Xuegang, Associate Dean of BNUBS and an expert of China Corporate Governance Experts 50 Forum, presided over the expert discussion

 

 

 

Professor Gao Minghua, Director of the Research Center for Corporate Governance and Enterprise Development of Beijing Normal University and Executive Director of the Academic Committee of China Corporate Governance Experts 50 Forum, released the research results

 

Quality Index Report of Chinese Listed Companies No.1 (2021) is the first evaluation report targeted on the quality of listed companies and presented in the form of index.

 

 

A group of all the experts

 

Research Achievement 1: Quality Index Report of Chinese Listed Companies No.1 (2021)

 

In October 2020, The State Council issued Opinions on Further Improving the Quality of Listed Companies. Opinions pointed out that the development quality of listed companies were still relatively low and it still fell short of the requirements of building a modernized economy and promoting high-quality economic development.

 

We need to use evaluation to find the problems and fix them. Based on this, Professor Gao Minghua, Director of the Research Center for Corporate Governance and Enterprise Development of Beijing Normal University, led a group and completed Quality Index Report of Chinese Listed Companies No.1 (2021). According to the Opinions and combined with visits and research on listed companies, the quality index system of listed companies is designed, including corporate governance (CG), social responsibility (SR), enterprise innovation (EI), performance and value (PV), with 122 specific indicators. After obtaining the scores of the above four dimensions, the weights of the four sub-indexes are determined by using principal component method and expert scoring method, thus forming the Quality Index of Chinese listed Companies (CLCQI). The report choosesA-share listed companies in Shanghai and Shenzhen stock markets that have been listed for one year until March 31, 2021 and set the expiration date at December 31th 2020. After eliminatingcompanies with incomplete or unavailable data, a sample of 3,615 listed companies was obtained. The report shows:

 

In terms of regions, in 2020, among the four regions of eastern, central, western and northeast China, eastern China ranked first in the overall quality index of listed companies, as well as in the two sub-indexes of corporate governance and performance and value.Northeast China ranked last in the overall quality index of listed companies, as well as in all four sub-indexes. 

 

From the five types of ownership division, in 2020, state-owned absolute holding companies ranked first in the overall quality index of listed companies, as well as in corporate governance, enterprise innovation and performance and value three sub-indexes. State-owned strong relative holding companies ranked first in the social responsibility sub-index. Non-state-owned shareholding companies ranked last in the overall quality index of listed companies, corporate governance and social responsibility. When we classify state-owned absolute holding companies, state-owned strong relative holding companies and state-owned weak relative holding companies into state-owned companies, and state-owned shareholding companies and non-state-owned shareholding companies as non-state-owned holding companies, we can see that in 2020, state-owned companies are higher than non-state-owned companies in the total corporate quality index and the four sub-indexes.  

 

In terms of final controllers, listed companies eventually controlled by central enterprises (or regulators) ranked first in the overall quality index and the four sub-indexes in 2020. Listed companies ultimately controlled by non-state-owned enterprises or natural persons ranked second in the overall index, as well as the two sub-indexes of corporate governance and enterprise innovation. Listed companies eventually controlled by local soes (or regulators) ranked second in the social responsibility and performance and value categories.

 

In terms of listed sectors, listed companies on the Shanghai Science and Technology Innovation Board ranked first in the overall quality index, corporate governance and enterprise innovation indices in 2020. Listed companies on the Shanghai Main Board ranked first in social responsibility and performance and value. Listed companies onShenzhen Growth Enterprise Market ranked second in both the overall quality index and the corporate governance and enterprise innovation sub-indexes.

 

In the top 100, the top three provinces are Guangdong, Beijing and Shanghai, with 22, 18 and 9 companies respectively, accounting for 3.67%, 5.59% and 3.17% of the total number of listed companies in their provinces. In terms of regions, 72 listed companies in eastern China accounted for 2.83% of the total number of listed companies in eastern China.In terms of sectors, the manufacturing sector had the largest number of 68 companies, accounting for 2.87% of the total number of listed companies in the manufacturing sector, while information transmission, software and information technology services had 9 companies, accounting for 2.94% of the total number of listed companies in this sector. There are 45 state-owned holding companies and 55 non-state-owned holding companies respectively, accounting for 4.26% and 2.15% of the total number of listed companies respectively. The proportion of state-owned holding companies is nearly two times that of non-state-owned holding companies. From the perspective of the final controller, there are 58 companies controlled by non-state-owned enterprises or natural persons, 22 by central enterprises (or regulatory agencies) and 20 by local state-owned enterprises (or regulatory agencies), accounting for 2.32%, 5.91% and 2.70% of the total number of listed companies controlled by the final controller respectively. In terms of listed sectors, the Main board of The Shanghai Stock Exchange has the largest number of 33 companies, accounting for 2.38% of the total number of companies listed on the main board of the Shanghai Stock Exchange. Although the Shanghai Science and Technology Innovation Board is the smallest with only 9 companies, it accounts for 9.78% of the total number of listed companies on the board. 

 

Research Achievement 2: China Listed Company Governance Sub-Index Report No.20 (2021)

 

China Listed Company Governance Sub-Index Report No.20 (2021) is the 20thannual report of corporate governance index presided over by Professor Gao Minghua, Director of Corporate Governance and Enterprise Research Center of Beijing Normal University. The report made a comprehensive evaluation of the governance of 3,774 A-share listed companies in 2020 (excluding those listed less than one year ago) by referring to international corporate governance standards. It covers six types of corporate governance indexes, including the protection index of the rights and interestssmall and medium investors, board governance Index, entrepreneur capability Index, financial governance index, voluntary information disclosure index and executive compensation index. At the same time, the report calculates the total governance index of listed companies in China. According to the report:

 

(1) The protection index of rights and interests of small and medium investors in Chinese listed companies increased continuously from 43.07 points in 2014 to 52.40 points in 2017. From 2018 to 2020, there were some fluctuations, but it was relatively stable, basically maintaining at the level of 52 points. In 2020, it was 51.95 points, slightly lower than 52.14 points in 2019. From 2018 to 2020, the average value of equity protection index of small and medium investors in state-owned holding companies was higher than that of non-state-owned holding companies. 

 

(2) The board governance index has been rising for six consecutive years, from 50.13 points in 2015 to 58.27 points in 2020, but it is still low on the whole. The board governance index of non-state-owned holding companies increased continuously from 2014 to 2020, and performed better than state-owned holding companies from 2015 to 2019. However, state-owned holding companies slightly exceeded non-state-owned holding companies in 2020.

 

(3) The capability index of entrepreneurs (CEO) decreased continuously from 35.71 points in 2011 to 29.78 points in 2017. However, after 2018, it showed a fluctuating rise, with 30.68 points in 2018, 29.63 points in 2019, and 32.76 points in 2020. Except for 2017, when the entrepreneurial ability of state-owned holding companies was slightly higher than that of non-state-owned holding companies, the average value of the entrepreneurial ability index of non-state-owned holding companies was higher than that of state-owned holding companies, but generally speaking, there was not much difference between the two types of companies. The index of entrepreneurial ability is always low, reflecting that the independence of CEO of Chinese enterprises is still very low, and their potential is difficult to be brought into full play.

 

(4) The financial governance index increased steadily from 2014 to 2017, from 52.79 points in 2014 to 53.67 points in 2017. But in 2018, it dropped to 52.03 points, a decrease of 1.64 points;In 2019, it rose to 54.18 points, an increase of 2.15 points. In 2020, it dropped to 53.80 points, 0.38 points lower than the previous year. In 2016 and 2017, the financial governance index of non-state-owned holding companies exceeded that of state-owned holding companies, but in 2018-2020, the financial governance index of state-owned holding companies exceeded that of non-state-owned holding companies.   

 

(5) The voluntary information disclosure index has been rising significantly in the past four years, from 41.02 points in 2015 to 50.25 points in 2016,a big increase. However, it decreased slightly to 49.55 points in 2017, and rose continuously to 63.45 points from 2018 to 2020. From 2015 to 2020, the average value of voluntary information disclosure index of state-owned holding companies increased for five consecutive years, and exceeded that of non-state-owned holding companies in 2020.Non-state holding companies saw a continuous increase from 2013 to 2016, a decline in 2017, but an increase from 2018 to 2020. In recent 4 years, the average value of voluntary information disclosure index of state-owned holding companies is very close to that of non-state-owned holding companies. 

 

(6) From the perspective of the executive compensation index, the executive compensation index of state-owned holding companies and non-state-owned holding companies decreased for three consecutive years from 2017 to 2019. In 2020, state-owned holding companies continued to decline while non-state-owned holding companies increased. The executive compensation incentive of state-owned holding company is much lower than that of non-state-owned holding company.

 

(7) From 2015 to 2020, the total governance index of China's listed companies kept rising, rising from 44.80 points in 2015 to 52.05 points in 2020, but still at a low level.

 

(8) According to the results of the governance index of China's listed companies, the report believes that, first, it is necessary to establish and strengthen the awareness of equal protection of the rights and interests of investors of all kinds, and play down the concept of “control”, especially in the practice of mixed-ownership reform of state-owned enterprises. Second, the independence of the board of directors should be further strengthened. More independent directors should be hired. Equity directors cannot force the board of directors to adopt their will. Third, we should speed up the construction of a transparent market for professional managers.The board of directors should select and hire general managers independently in the market, and give them independent rights and responsibilities. Fourth, we should strengthen internal control, attach great importance to the allocation of financial rights among stakeholders, and optimize the incentive mechanism for stakeholders. Fifth, we should constantly strengthen the advanced awareness of “saying what we can say” and eliminate the outdated concept of “saying unless necessary”, which requires the construction of relevant legal systems and the continuous enhancement of the deterrent power of law. Sixth, the growth of executive compensation should be consistent with the growth of corporate performance. To judge the level of executive compensation of an enterprise, we should not only look at its absolute amount, but also its contribution.  

 

The governance sub-index evaluation of Chinese listed companies is the "barometer" of enterprise risk control and development. It is important for enterprises to strengthen corporate governance to ensure sustainable development, for equal protection of property rights and reform of state-owned enterprises under mixed ownership were promoted in an orderly manner, for regulators to strengthen corporate governance legislation and law enforcement as well as penetrating supervision, for investors to invest rationally to reduce risks, for the prevention of capital disorderly expansion and invisible actual controller manipulation, and for early warning of corporate governance risks tovarious stakeholders. IT can also It can also provide big data support for corporate governance theory and empirical research.

 

Research Achievement 3: Governance Index of Listed Companies in China's Financial Industry No.2 (2021).

 

Governance Index of Listed Companies in China's Financial Industry No.2 (2021)is based on the “China Listed Corporate Governance Sub-Index Database” developed by the Research Center for Corporate Governance and Enterprise Development of Beijing Normal University. It is an independent special report from the China Listed Company Governance Sub-Index Report No.20 (2021). It is the second separate report on the governance sub-index of financial listed companies.

 

Compared with other industries, the financial industry is characterized by difficulty for stakeholders to participate in governance, high debt ratio, high systemic risk and great influence on national economic security.Corporate governance is an important institutional arrangement to prevent systemic risk in financial industry. Therefore, it is very necessary to understand the current situation of corporate governance through the evaluation of the governance of listed financial companies, discover the potential risks of corporate governance, and formulate targeted risk prevention measures. This is the original intention of this report.

 

In order to be comparable among different companies, the evaluation sample of listed financial companies in this year must have been listed for one year.A sample of qualified listed financial companies numbered 117, 10 more than last year. 

 

The evaluation found that in the past two years, under the guidance of the Three-year Action Plan for Improving corporate Governance in the Banking and Insurance industry (2020-2022) promoted by the CBRC, The financial industry has made great progress in strengthening the construction of institutional regulations, continuously deepening the reform of corporate governance, effectively preventing and resolving financial risks, and steadily improving the quality and efficiency of corporate governance in the banking and insurance industry. Data showed that the governance level of listed companies in China's financial industry in 2020 has significantly improved over the previous year. However, the score of corporate governance rules or standards of international norms is still low, and there are still large governance risks, which need to be paid close attention to.

 

For financial listed companies, the total corporate governance index increased by 2.2978 points over the previous year, ranking first among all 18 industries. The protection index of rights and interests of small and medium investors increased by 1.1544 points compared with last year, ranking first in 18 industries. The entrepreneur (president or president) capability Index increased 4.5854 points from the previous year, and ranked 13th out of 18 industries, up five spots from the previous year. The financial governance index was 0.8914 points lower than that of the previous year, ranking the second place in all 18 industries and one spot lower than that of the previous year. The voluntary information disclosure index rose 3.5954 points from the previous year, ranking second among 18 industries, up one spot from the previous year. Both the executive compensation index (incentive level) and the absolute compensation of listed companies in the financial sector are significantly higher than those in the non-financial sector.

 

The report put forward ten suggestions on improving corporate governance in the financial sector from the perspective of enterprises and supervision.

 

From the perspective of financial enterprises: (1) Comprehensively improve the protection of the rights and interests of small and medium investors in the financial industry, with the focus on respecting and effectively implementing their decision-making rights, and supervision rights and right to earnings. (2) Comprehensively improve the governance level of the board of directors in the financial industry, focusing on strengthening the independence of the board of directors and establishing a code of conduct for directors, rather than being satisfied with the rules of procedure of the board of directors. （3) Comprehensively improve the ability of entrepreneurs in the financial industry led by governors, general managers or presidents, attach great importance to their independence in operation, and truly let them assume the responsibilities of CEOS, with the focus on improving their sense of social responsibility and strategic leadership.(4) Comprehensively improve the level of financial governance in the financial industry, on the one hand, further improve financial control (internal control) and financial supervision system, on the other hand, attach great importance to the optimization of the allocation of financial rights among stakeholders, as well as the financial incentives of stakeholders, and mobilize their motivation to participate in corporate governance. (5) Comprehensively improve the level of voluntary information disclosure in the financial industry, the focus is to strengthen voluntary information disclosure for all stakeholders and risk control, and to strengthen the awareness of “saying what can be said”.(6) Comprehensively improve the matching degree of financial executives' compensation incentives with their contributions, it is necessary to formulate a scientific evaluation system to objectively evaluate the actual contribution of executives to the enterprise, rather than just “aiming at” the absolute level of executive compensation.

 

From the perspective of financial supervision: 1. Establish a modern financial enterprise governance system in line with international standards and with Chinese characteristics.We should improve the procedural law, enhance the deterrent force of the law, give full play to the role of shareholders' meetings, and consolidate the responsibilities of all governance bodies. 2. We will strengthen the penetrating supervision of small and medium-sized financial institutions and safeguard the rights and interests of small and medium-sized shareholders.  We should attach great importance to “penetrating” supervision over shareholders, solve the “last mile” problem of safeguarding the rights and interests of minority shareholders, and strictly restrict the behavior of major shareholders. 3. We should improve the independent director system and strengthen the construction of talents for independent directors, including: (1)Try to establish an independent appointment and compensation mechanism for independent directors.  We can consider to authorize the CSRC, stock exchanges, China Association of Listed Companies, or establish the China Association of Independent Directors to undertake the selection, appointment and removal of independent directors and pay the remuneration of independent directors on behalf of listed companies. (2) Formulate a code of conduct for directors.The board of directors should not only be satisfied with the establishmet of the rules of procedure of the board of directors, but also need to formulate the code of conduct and accountability mechanism of directors. We should not overemphasize the collective responsibility of the board of directors, but should clearly define the specific responsibilities of each director, and strengthen the supervision of directors' behaviors (research, communication, information verification, feasibility report writing) before the board meeting, so that they can actively perform their duties. (3) Establish and cultivate the talent market for independent directors. It is suggested to build a high-level independent director market, open up a wide way to recruit talents, attract talents from all over the world and gather outstanding independent director talents. (5) Strengthen anti-monopoly in the information economy era and resolutely prevent the disorderly expansion of capital. We will enact laws to “cage capital”, safeguard data security, data rights confirmation and privacy security, and prevent big money from controlling public opinion.        

 

About China Corporate Governance Experts 50 Forum

 

China Corporate Governance Experts 50 Forumis a non-profit high-end think tank platform for corporate governance, which was launched in October 2020 by more than 50 corporate governance experts from the political, academic and business circles. The forum is dedicated to the implementation of the central government's goal of modernizing the country's governance system and capacity, and build a platform for exchange of corporate governance theories and experience among government departments, research institutes and enterprises. It is committed to researching the realization methods of corporate governance values such as high transparency, clear accountability, effective supervision and respect for stakeholders, serving the theory and practice of modern enterprise system with Chinese characteristics. It is committed to basing itself on China and facing the world, and promoting the modernization of the governance system and capacity of Chinese enterprises.

 

China Corporate Governance Experts 50 Forumwill continue to carry out research on major issues of corporate governance, play a positive role in the reform and development of Chinese enterprises, build a platform for exchange of corporate governance ideas, form special research reports for reference by central and government departments as well as enterprise decision makers, carry out international academic exchanges on corporate governance, learn advanced theories and experiences of corporate governance in the world, disseminate theories of modern enterprise system with Chinese characteristics, assess the level of governance of Listed Companies in China by category, form a sub-index of governance of listed companies in China and a quality index of listed companies, and guide enterprises to precisely improve their corporate governance.      

 

The secretariat of China Corporate Governance Experts 50 Forum is located in the Research Center for Corporate Governance and Enterprise Development of Beijing Normal University.

 

 

Provided by Research Center for Corporate Governance and Enterprise Development

Edited by Gao Minghua

Reviewed by Sun Zhijun