BIZCHINA> Review & Analysis
|
BIZCHINA> Review & Analysis
|
|
Banking reform required
(China Daily)
Updated: 2009-11-30 08:02 Editor's Note: In this international financial crisis, Chinese banks' internal systems and corporate governance structure did not show obvious defects. Xiao Gang, chairman of Bank of China Ltd, said Chinese banks should build corporate governance with Chinese characteristics. The modern corporate governance concept and models in China were basically borrowed from the West. The models in Europe and the United States were once admired by developing countries. Chinese companies also tried to follow suit. However, over the past two years, many large financial institutions in Europe and the United States became mired in the global financial crisis or even went bankrupt.
Most of these companies were once regarded as shining examples of corporate governance. Some good practices also failed. As a result, corporate governance returns to be a hotly discussed topic. Reflection over the past experience is under way among various countries and institutions. In this international financial crisis, banks' internal systems and corporate governance structure did not show obvious defects. Directors' visions, capabilities and performance were generally satisfactory. However, the identification of major risks and strategic decision-making by the board of directors went wrong. These problems stemmed from insufficient attention to social responsibility by the board of directors. Many banks' boards emphasized short-term interests, but ignored sustainable profits in the long run. They boasted about the role of banks in economic development and society, but neglected the basic activities of material production and exchange. They relied on the financial innovation of the "elites", but failed to do more to help the majority of employees in their career development. In this sense, it is high time for the board of directors to think about social responsibility seriously. Social responsibility At present, State-owned commercial banks in China have diversified their shareholding structures. The State takes a controlling stake in these banks. We built our own corporate governance systems by learning from different countries. We found there are both advantages and shortcomings in our systems from years of experience. First, our board of directors emphasizes social responsibility. We firmly believe that economic development comes before finance. The banking industry has a strong correlation with the economic cycles.
Second, we ensure an effective system of checks and balances for the incentive and discipline mechanism at the banks. For example, we impose a ceiling on the remuneration of our management team, which definitely discourages them from taking excessive risks to seek short-term interests and unsustainably high profits. While designing the remuneration system, we stressed that abnormally high profits could not come solely from the efforts of the managers, but that other unexpected factors might be involved. Third, our board of directors does not focus only on the shareholders' interest, but is also responsible to society, customers, the bank and employees. When giving consideration to the shareholders' best interest, we also take into account the benefits to the customers, the bank and employees. Although we often receive criticism for this practice, we will continue to make efforts to achieve a good balance among the benefits on all sides. (For more biz stories, please visit Industries)
|
