Opinion | China's state-owned giants need to enter modern corporate age
Hu Shuli says a professionally run company with an effective board of directors, clear oversight and less party control will help curb graft
Corruption involving China's state-owned enterprises has hogged the headlines. So far, senior executives at China National Petroleum Corporation have been sacked, former railways officials have been hauled to court and, most recently, news broke that two executives at Cosco are also being investigated.
There has been no shortage of ideas on how to reform the sector. The key lies in adopting a system of modern corporate governance.
Major state-owned enterprises should be the first to start by setting up a board of directors. Under its leadership, all senior managers including the chief executive should be hired through competitive recruitment. The board's role is to fulfil its duty of care to the shareholders; it makes the decisions that its managers execute - this separation of powers will improve oversight of the company's operation.
By concentrating power in the hands of a few, the set-up encourages corruption
China has aspired to build a modern corporate culture since the third plenum of the 14th central committee 20 years ago. Yet the goal remains elusive. Among the 113 state-owned enterprises overseen by the central government, only 57 have set up boards of directors in their group's holding company. Among these 57, most have the board chairman double as chief executive. Further, many have boards of supervisors in name only.
This kind of system makes dictators of the top managers. By concentrating power in the hands of a few, with virtually no oversight, the set-up encourages corruption.
The problem is that too many people in China regard setting up a board of directors at a state-owned enterprise as a mere formality.
This sentiment has its roots in the fact that state capital is usually the "major shareholder" of the company. Today, listed companies of state-owned enterprises have largely adopted more modern governance in an effort to attract investors. But if their parent companies still pride themselves on sticking to the outdated system of governance by administrative planning, the listed companies are bound to suffer.
An effective solution is to allow some institutional investors - such as the national social security fund, foreign exchange reserve fund and China Investment Corporation - to take a stake in the company, thus diversifying its shareholder structure.