Walter Hutchens’ Blog

Zhang Yujun (张育军) head of the Shanghai Stock Exchange, recently gave a speech at a forum on corporate governance and information disclosure for listed companies and banks, as reported here.

He said promoting corporate governance is a priority for the SHSE this year. In working on reforming corporate governance, four areas are receiving special attention this year: the illegal use of listed company capital by large shareholders, the illegal issuance of guarantees by listed companies, inappropriate related-party transactions and same-industry competition (between listed firms and parents or affiliates), and the fulfillment of agreements entered into as part of the process of making illiquid shares liquid.

Zhang said the SHSE has created a corporate governance promotion committee, along with other measures including training executives and directors, assessing corporate governance practices and publishing “best practices” case studies.

Zhang also indicated experiments with requiring listed companies to use the open XBRL standard for some mandatory disclosure reports (annual and semi-annual reports, mostly) will be conducted in 2009.

He also “revealed” that Listed Company Governance Rules 《上市公司监管条例》have already been submitted to the State Council’s Legislative Affairs Office and should be promulgated during this calendar year. Zhang also said the SHSE is pushing forward Principles of Listed Company Governance 《上市公司治理准则》which he indicated will be the first in a series of enactments. (Perhaps he meant an amended version? Rules by the same name were enacted in 2002, per here).

. . . More rules, training and exhortation may be helpful, but I think corporate governance and all manner of rule enforcement for listed firms in China would be improved if 1) shareholders could more easily sue listed firms for breaking disclosure rules, violating fiduciary duties and usurping listco assets and 2) the stock exchanges in Shanghai and Shenzhen were more autonomous. If the exchange Zhang heads had more freedom to make its own listing standards, rather than being, really, controlled by the central government, it might do more to create and enforce disclosure and governance standards that would attract more investors and issuers. But in China none of that seems to be in the hands of the exchanges. Zhang is appointed by the central authorities, submits the exchanges’s proposed rules to them and, one imagines, does not have much room to speak or maneuver without their blessing. Improved rule of law and improved exchange governance (though greater autonomy) could help improve corporate governance in China.

. . . Yujun . . . as in raise or train the army. Classic Cultural Revolution name.