Shanghai Stock Exchange sets out corporate governance plans

Source: Shanghai Stock Exchange

It is learnt from the Shanghai Stock Exchange (SSE) that the special corporate governance of the SSE-listed companies has run smoothly since the 1st quarter of 2007.

Upon examination, the SSE discovered some problems in corporate governance and will take regulatory measures against the companies with problems. Moreover, it will report to the China Securities Regulatory Commission (CSRC) for investigation and disposal of the companies with incompetent governance structures or refusing to embark on rectification toward existing problems. Meanwhile, the SSE plans to work out and timely introduce a series of new systems to further regulate the behaviors of controlling shareholders and the duty performance of directors, supervisors and senior management, thus improving the corporate governance.

The CSRC asks for strengthening corporate governance.

The CSRC issued the "Notice of Issues concerning Implementing and Strengthening Special Governance of Listed Companies" to all listed companies on March 9, 2007, requiring them to execute the notice and complete the task before October.

So far, 843 companies on the SSE have disclosed their self-inspection reports and rectification schemes. The SSE website receives a total of 11,655 pieces of assessment on the governance of 568 companies. Meanwhile, the SSE issued the "Opinions on Appraisal of Listed Companies' Governance" to 569 companies successively. 461 companies have published the "Rectification Report on Corporate Governance" according to the appraisal opinions and the "Rectification Notice of Corporate Governance" of local securities regulatory bureaus.

Existing problems cannot be neglected.

According to an SSE official, the SSE discovered some problems in corporate governance of the listed companies upon examination of their "Self-inspection Report and Rectification Scheme" and "Rectification Report on Corporate Governance".

Regarding standard operation: in the system establishment, some companies failed to timely formulate the "Management System of Information Disclosure", the "Working System of Independent Directors" and the "Management System for Raised Funds", etc. according to the requirements of the CSRC and the SSE.

Regarding establishment of sound internal control system: some companies haven't got special auditing departments and essential internal auditors. Some companies' CFOs, responsible for corporate auditing, is also in charge of finance affairs, which violates the "Articles of Association" and the requirements of finance internal control.

Regarding corporate independence: many companies' workshops or land property right, owned by their controlling shareholders, still have not been transferred under the companies' names. Some companies depend too much on their controlling shareholders in means of production and power, leading to a large proportion of daily connected transactions between the companies and their controlling shareholders.

Supervision over companies with problems will be reinforced.

It is known that in the special governance of listed companies, some companies didn't look deep into their problems in their self-inspection. Instead, they concealed their defects and disguised themselves in the trivial. The SSE will impose rigorous supervision on these companies in light of the notice. Besides, it will also require them to announce their reports and rectification plans after improvement and modification.

Specifically, the SSE will take regulatory measures against the listed companies with problems in corporate governance. The measures include meetings with the board chairmen, interviews with the senior management and issuance of surveillance attention letters, with an aim to prompt substantial rectification. Listed companies with incompetent governance structures or refusing to embark on rectification toward existing problems will be reported to the CSRC for investigation and punishment. Besides, the SSE is pooling human resources to research, formulate and timely introduce a series of new systems. With the construction of the enhanced fundamental systems, it is to further regulate the behaviors of controlling shareholders and the duty performance of directors, supervisors and senior management, thus improving the corporate governance.

In accordance with the requirements of regulation practices, the SSE has mapped out the following preliminary plans: firstly, to formulate the "Code of Conduct for Controlling Shareholders of Listed Companies", which will regulate how the controlling shareholders should cooperate in the information disclosure of listed companies and fulfill their obligations of information disclosure; secondly, take the reference of practices of overseas markets to specify the obligations of listed companies' directors as stipulated in the "Corporation Law" and thereupon formulate the "Work Guide for Due Diligence of Listed Companies' Directors" to regulate the directors' behaviors, enhance their initiative of duty performance and improve the effectiveness of the SSE's surveillance; in addition, according to the standards for identification of related persons responsible in cases of violations in listed companies' information disclosure established by the CSRC Administrative Penalty Committee, to formulate the "Guide for Identifying Persons Responsible in Information Disclosure Violation of Listed Companies" in order to specify relevant principles and procedures in identifying persons responsible and consequently to guide them to shoulder the responsibility of guaranteeing truthfulness, accurateness, integrity, timeliness and fairness of their companies' information disclosure.

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