China corporate governance report: CNOOC interview

Euromoney: How many of your board are independents?

Currently five, four of them expats from Hong Kong, some with US or Australian citizenship.

Euromoney: And when they make recommendations to you, in addition to listing rules, what do they suggest?

Another area is best practice, especially after Sarbanes-Oxley. Foreign companies listing in the US make a lot of complaints, saying this 404 [the Sarbanes-Oxley provision on internal controls] is too time consuming, too costly. I told our board that what they were saying was right, but as a Chinese company we invest a lot of time and effort in this because we are at a different level. Companies from US and Europe have gone through industrialisation already; their management systems are complete. Companies from China are still in the industrialisation period, so we have to take this opportunity to make an improvement. We are actually doing a lot more work than is required by Sarbanes-Oxley 404, and we will benefit.

In the past, when our financial results were released, it took around three months before we could get concrete figures to tell the market. Now it is shorter. Before, I was not confident; now, anything we release, I am very confident about. I hear no cries from employees and no complaints from management about the energy we spend on this because they all believe this is what we should do.

And now, we are expanding this from the listed company to our non-listed part. The parent company of CNOOC now also has an annual report – I believe it is the first one to use the same criteria as listed companies. It uses the same international accounting rules and you have concrete, audited information. If you read our parent’s annual report you know everything. You cannot find any other company in China where the parent company does this.

Euromoney: So if we  were to compare you to ExxonMobil or BP, and looked at the management structures, the governance structures, the reporting, do you feel you’re at the same level?

Fu: I think we are using the same criteria, and each company has its own characteristics, using the rules differently. But we think we’re using the highest criteria and applying the best of our efforts. I believe our corporate governance is no worse than any other company in this industry. You have to appreciate that a lot of companies, even in the US, have got big problems. It’s not because their listed rules are not good, or that supervision is weak or that corporate governance is not there. The key is, once you have the listing rules and the corporate governance systems, the management and chairman has to fully believe in it, make it part of your philosophy, your morals, your ethics, you can fully focus on it.  It is no good saying OK I will do it when the business is running well, and think differently if the business is going less well.

The market is very demanding, and when there is pressure for you to deliver you may say something different, but you need to tell the truth. As the chief executive I’m not just listening to the market: The market looks short term. My goals are a lot bigger than just the investors. I need to make sure the company is really needed by society, by the customer, the employees; then the investor will link all your interests together. But I cannot just deliver good returns to the investor and damage the interests of the local community.

Euromoney: Chinese companies are increasingly looking to acquire businesses overseas, but there is still sometimes suspicion in western countries about China. You saw it at CNOOC with Unocal; you are seeing it again with Rio Tinto. Should people in the west be suspicious?

The world keeps changing, faster than most of us expected. What we knew before, our knowledge and experience, is not enough to deal with future situations. In our case, when we tried to acquire Unocal, you can identify this as part of the problem: people are not ready to face the changes. People are scared, they are resistant to change. But everybody needs to change themselves to face the new environment. For us, it’s the same: when we realise the outside world is not ready to welcome this, we need to be patient, and to change our strategy to make people feel what we are doing is not hurting their interests. So when we go overseas, it should not mean somebody else is going out of business. We need to grow together.