Foreign investors will need more clarity on role of Communist Party organisations in listed firms, says report
Relationship between the board of a company and party organisations not clearly laid out in revised governance code, says Hong Kong non-profit organisation chief
Foreign institutional investors will need more clarity on the role of the Communist Party in China’s listed companies, according to a report published by the Asia Corporate Governance Association, a Hong Kong-based non-profit organisation, on Tuesday.
About 61 per cent of the 152 foreign fund managers surveyed by the organisation in the third quarter of 2017 said they did not think the party had a “clear and accountable” role in listed companies. Only 3 per cent said otherwise, while 15 per cent considered it “somewhat” clear and accountable, and 21 per cent were not aware of its existence.
“Most foreign institutional investors would welcome more explanation and clearer lines of accountability around party organisations,” said the organisation, which has been around for 19 years.
Details such as membership, structure and activities of party organisations could be included in a “report from the party organisation”, similar to those written by boards of directors and supervisory boards, the association said, in addition to how these party organisations make decisions on important issues, hire and fire important cadres and approve important projects and other major budget items.
The role of Communist Party organisations in listed companies finds mention in China’s corporate governance code, which is undergoing consultation for its first revision since 2002. The China Securities and Regulatory Commission last month issued a draft of the revised governance code for public comment, and one of the new clauses states listed companies must provide the necessary conditions for the setting up of party organisations.
As most party organisation members also serve on the board and often hold senior executive positions, and party bosses are supposed to have discussed and agreed upon key issues before putting them to the board for approval, this has raised concerns that it could limit contribution from board directors, especially independent ones, said Jamie Allen, the association’s secretary general.
“The board and party committee’s relations have not been clearly laid out,” he said. “This is important as it could limit the role of the board.”