China corporate governance report: foreign independent directors

Euromoney guides, June 2009

When foreign multinationals started taking strategic stakes in China’s biggest blue chip companies, they brought with them a new phenomenon: the foreign non-executive director.

These days, many of China’s biggest companies have at least foreigner on the board as a non-executive. Some are not independents, instead representing a major foreign shareholder. An example is Clive Bannister, a non-executive director at Ping An; Bannister is also group managing director of insurance at HSBC Holdings, reflecting HSBC’s shareholding in Ping An. Similarly Christopher Cole, a senior Goldman Sachs banker, serves on the ICBC board, reflecting Goldman’s stake in and partnership with the Chinese bank. Another is Nicholas Read, Vodafone’s regional CEO for Asia Pacific, who became a non-executive director of China Mobile in March: Read follows other Vodafone executives who have served on the China Mobile board, among them Chris Gent.

Other companies, both private and state-owned, have gone further and sought out independent non-executives from overseas: perhaps because of industry expertise, perhaps because of political nouse outside of China, perhaps because it looks good. Two prominent examples of this trend are Jenny Shipley, the former New Zealand prime minister, who serves on the board of China Construction Bank; and Gene Michael Bennett, who serves as a director on three separate private Chinese companies: China Shen Zhou Mining & Resources, China Agritech, and China Pharma.

Shipley joined the CCB board in November 2007 and is one of two foreign independent non-executives on its board, the other being Elaine LaRoche, the CEO of Salisbury Pharmacy and formerly Morgan Stanley’s seconded CEO to CICC from 1998 to 2000. Shipley had a long-standing involvement with China, dating back to before her prime ministership, which ran from 1997 to 1999; during that tenure she visited both as prime minister and as chairman of APEC in 1999, and also hosted then-president Zhu Rongji in New Zealand. “There was a strong political interest and understanding that grew during that period,” she says; among the things that came from it were free trade talks.

After leaving government she continued to visit China for private sector companies and provinces, spoke at the BoAo forum and became involved in its projects. A combination of these elements brought her to the attention of China Construction Bank, which was also well aware she had served as New Zealand’s Minister of State-Owned Enterprises, highly relevant to a Chinese company making the same transition.

She describes her experience on the board in very positive terms. “The independent non-executive directors have been invited to share our experiences in terms of international best practice, and both individually and as a group we most certainly do just that,” she says. “And it is as lively and interesting as any board I sit on in that respect.” She notes that the boards, with a separate board of supervisors and a board of directors, are large – “while the function of the directors is clear, there is a larger number of people present than would perhaps be the case on the commercial board of a similar international corporate” – and cites other points of difference. “There are things like: you do not appoint a chairman or president. That is quite a significant difference. But when you accept these appointments you are quite aware of how these things function and you should not accept a role if you are not aware.” In any event she describes those individuals as “highly competent people, and I frankly could not criticise their role or diligence in their oversight of the bank. They are equally as good as people in similar roles I have observed.”

Shipley says she sees “enormous interest in the idea of corporate governance” in China. “You can’t help but be struck by the fact that in every formal and informal conversation you have with the executive members of the management team, they are constantly searching for ideas and strategies. They are very quick to pick up ideas.” CCB’s senior executives, she says, often try to meet the independent directors informally between the official meetings to share ideas. “As for the officials that advise, like every board that’s variable. But they take good independent advice, and when we ask for additional information I have never had cause not to be satisfied.”