China corporate governance report: CNOOC interview

Euromoney guides, June 2009

Fu Chengyu is chairman, chief executive officer and executive director of CNOOC Ltd, the Hong Kong and New York-listed arm of China National Offshore Oil Corp. He talks to Euromoney about CNOOC’s approach to corporate governance and social responsibility.

Euromoney: Tell me firstly what corporate and social responsibility means to you and to CNOOC.

With globalisation in the economy, social responsibility has become very important not only for enterprises themselves but the areas they operate in. We have focused on further integrating CSR into our management system. It has become a philosophy of how we run our business, both for the management and for the employees.

For years, we have valued social responsibility as important to shareholder returns. Optimising profitability is no more important than corporate social responsibility. So, when we tell our employees to maximise returns to shareholders, it is based on social responsibility. Whatever we do, we will see whether or not we can meet the requirements from society, from the community, and from the customer. If we satisfy that requirement, then we maximise profitability.

As an energy enterprise we emphasise environmental protection, especially climate change. We have done many things to actively respond to climate change: environmental issues in China are presenting a great concern both to the government and the people. As an energy company the first priority for us, when we’re talking about corporate or social responsibility, is to try to have less emissions, provide more clean energy, and provide technology for businesses who use the energy. We have done a lot in these areas in the last few years.

Euromoney: That’s your philosophy. Could you give me some examples of what you’ve done?

Fu: We set higher standards in environmental protection than the government requires. For example, in water production, the government standard is 30 PPM discharge. Our standard has been 25 PPM, but now we are asking for zero discharge, even though this will cost more.

Second, we have introduced the recycling philosophy in the business. Whatever we can reuse, recycle, we do, and in the refineries and our chemicals business our criteria are a lot stricter than the government requires.

We also try to be good to the local community. For years we have run community environment programmes, particularly supporting the poor. This includes our programme in Tibet [the Tibet Aid policy]. We have a 10-year programme for the whole country for infrastructure; we have training and education programmes, helping students from poor families who lack financial support. Every year in the last 10 years we have a programme that totals from RMB100 million to 200 million per year supporting poor families in poor areas, for education, natural disaster relief, clean water projects or whatever is required by the local community. This lets people understand what we are doing. Our production is not just about physical materials or physical wealth, but distributing wealth and helping the local people.

Euromoney: How have you tried to implement strong corporate governance standards at CNOOC?

This is a very important area for the sustainable growth of the company. On the first day the company was listed, we adopted the listing rules from New York and Hong Kong to set up a corporate board. The members of the board are mainly from outside the company. And we have a lot of expats on our board, mainly from Hong Kong. Those board members are very responsible and have high requirements for the company, especially on the governance side.

Within the board we have committees, including one that looks at governance. As chairman, after every board meeting I will have separate meetings with the independent directors to see if they have other recommendations for the company which might be something they want to discuss separately from the board meeting. They make a lot of recommendations, most importantly to make sure the company follows the listing rules, especially in the area of public information release. This is important to make sure the public feels this is a transparent company. I don’t want investors to be guessing about the company, I want them to have all the information so they can judge for themselves.

We benefit from this. We have a lot of pressure from it too – because of transparency any single mistake is immediately noticed – but the good side is, when people know the company, they will pay a higher price for your stock, because they know what the risks are. If you make them feel uncertainty, they will pay less. In past years you will see our stock has always outperformed the market.