Telecoms reshuffles ring up corporate governance static

PUBLISHED : Saturday, 14 July, 2007, 12:00am
UPDATED : Saturday, 14 July, 2007, 12:00am

So much talk about corporate governance. So much talk about management capability and incentive. All this talk goes down the drain with the newly announced management reshuffles among the mainland's four telecommunications companies.

Early this week, the four players told shareholders they would 'swap' executive directors with immediate effect. Swap? Yes, Mr A will take up Mr B's job in a competitor and vice versa, taking with them trade secrets.

These moves, which would be unthinkable in the business world, were announced all in a day as a matter of fact with no independent directors seen to be doing anything.

You may wonder at the reason behind such a shocking manoeuvre. This is not the first time state-owned enterprises have played musical chairs. The same thing happened with the country's major banks last year. Last month, the chairman of Sinopec was replaced by a former executive from rival China National Petroleum Corp.

Well, not being the first does not sanctify the move. Moreover, the current reshuffles affect senior working-level officers, not just the titular top posts of chairman or chief executive as in previous cases.

We are told that in order to ensure the state or the party's full control of a company, the chairman and chief executive/general manager of all central-level SOEs are 'political appointees.'

The State-owned Asset Supervision and Administration Commission (SASAC) is limited to making recommendations on candidates. The party's organisation department has the final say. It will scrutinise not only a candidate's managerial skills but perhaps, more closely, their political correctness.

The SASAC has a relatively free hand in the appointment of lower-ranking vice-presidents and officers. Therefore, much has been done or at least been said to be done with the upgrading of these senior working-level officers ever since the agency was founded in 2002.

Much is publicised about the SOEs' worldwide search for chief accountants and senior vice-presidents as well as the granting of options or performance-linked incentives.

Investors have been given the impression that while the key figures will understandably remain tightly controlled by the state, the rest are allowed to evolve gradually into professional managers who will put business and shareholders' interests at heart. These people are paid as if they are real professional managers.

The current reshuffle, if anything, dashes the propaganda. All SOE managers, no matter what grade, are no more than government hand maidens who come and go as the state orders.

The state certainly has its own agenda. But where are the independent directors? These directors, including many prominent Hong Kong businessmen and ex-regulators, have lots of questions to answer.

Why isn't there a cool-off grace period to stop senior management from working for a rival right away? (For the telecoms operators, the resignations took immediate effect on July 9 and the new appointments are pending approval by shareholders, which is almost guaranteed given the state's major controlling stake.)

What has the company done to ensure the outgoing director will not pass on trade secrets to competitors, including marketing strategy and product design?

Well, it is the mainland. Some analysts have even ventured to guess that the reshuffle is to prepare for a business and asset restructuring among the operators.

If so, can the companies tell us whether they were aware of this master plan when they made the new appointments? If yes, why didn't they inform their shareholders?

Or is it, as an industry participant put it, a government attempt to beef up the managerial ability of particular companies so that the giant China Mobile gets a genuine competitor?

If this is the case, can the directors of China Mobile tell us why the 'star' executive is allowed to go help rivals? By the same token, can the directors of the other three operators tell us why they haven't become genuine competitors?