Provincial/ministerial independent directors: China State Construction independent director Che Shujian, former State Council inspector; China State Construction independent director Wang Wenze, former general manager of State Energy Investment Corporation; Baoti Shares independent director Qian Guijing, former chairman of the Supervisory Board of Large Key State-Owned Enterprises; China Railway independent director Han Xiuguo, former chairman of the Supervisory Board of Large Key State-Owned Enterprises

Yesterday, Baoti Shares published an announcement that Qian Guijing has applied to resign from his position as independent director of the fifth board of directors of the company due to personal reasons, and also resigned from his positions as member (chairman) of the remuneration and assessment committee and member of the nomination committee of the fifth board of directors. According to an incomplete tally by the Beijing Youth Daily reporter, this is the 29th provincial/ministerial-level independent director among the more than 260 independent directors who have resigned successively since the Organization Department of the CPC Central Committee issued Document No. 18 on October 19 last year, triggering a wave of independent director resignations in the A-share market.

Latest

Four provincial/ministerial-level independent directors resign recently

The resignation of Qian Guijing, who once held a vice-ministerial-level position, is the most vivid case in the wave of resignations of provincial/ministerial-level independent directors. An annual report of Baoti Shares shows: Qian Guijing, executive vice president of the China National Light Industry Council, previously served as chairman of the Supervisory Board of Large Key State-Owned Enterprises of the State Council (vice-ministerial level). In March 2009, he ceased to serve as chairman of the Supervisory Board of Large Key State-Owned Enterprises. The annual report also shows that Qian Guijing's term of office was from September 15, 2011 to September 14, 2014. With two months left before the end of his term, he suddenly proposed resignation. Baoti Shares explained this as "personal reasons," but the deeper meaning is thought-provoking.

The reporter noted that the frequency of voluntary resignations by provincial/ministerial-level independent directors has been increasing recently. On June 21, China Railway published an announcement stating that it agreed that non-executive director Han Xiuguo would no longer serve as a candidate for non-executive director of the third board of directors, for unknown reasons. A review of relevant information on China Railway shows that Han Xiuguo is currently a member of the 11th National Committee of the Chinese People's Political Consultative Conference. From January 1998 to September 2001, he served as vice governor of Gansu Province. From September 2001 to March 2009, he served as chairman of the Supervisory Board of Large Key State-Owned Enterprises. Since January 27, 2011, he has served as a director of China Railway.

Just nine days before Han Xiuguo's resignation, Wang Wenze (vice-ministerial level), former general manager and party secretary of the State Energy Investment Corporation, and Che Shujian (vice-ministerial level), former inspector of the State Council, also resigned from their positions as independent directors of China State Construction at the same time. On June 12, China State Construction published an announcement on the resignation of independent directors, stating that in accordance with the requirements of relevant documents on party and government leading cadres holding concurrent posts (positions) in enterprises, Mr. Wang Wenze and Mr. Che Shujian proposed to resign from their positions as independent directors of the company and related positions in the board committees. According to the official website of China State Construction, Wang Wenze has served as general manager and party secretary of the State Energy Investment Corporation since August 1998; member of the Financial and Economic Committee of the 10th National People's Congress; and has served as independent director since December 10, 2007. Che Shujian served as a member of the party group of the Ministry of Construction from 1998 to 2000, and as inspector of the State Council (vice-ministerial level).

Phenomenon

Provincial/ministerial-level independent directors completely withdraw from the top ten companies

As of yesterday, the top ten companies by total market value in the two stock markets were PetroChina, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, Sinopec, China Life, China Shenhua, China Merchants Bank, Ping An of China and Industrial Bank. These top ten companies were once places where provincial/ministerial-level independent directors clustered. Now, provincial/ministerial-level independent directors have completely withdrawn from the top ten companies.

On May 29, Sun Changji, independent director of China Life, resigned. China Life's announcement at the time stated that in accordance with relevant national policies and regulations, Sun Changji proposed to resign from his positions as independent director of the company, chairman of the nomination and remuneration committee and member of the audit committee. Information shows that Sun Changji has served as independent director since May 2009, and previously served as executive deputy director of the State Bureau of Machinery Industry (vice-ministerial level), and deputy party secretary and vice president of Bank of China (vice-ministerial level).

Compared with China Life, PetroChina Company Limited held its annual shareholders' meeting on May 22, and three former vice-ministerial and ministerial-level officials who served as independent directors of the company were no longer on the candidate list for the new board of directors. This move caused a stir in the industry. The company explained that the reason was "due to retirement and term limits, they did not participate in re-election." The three provincial/ministerial-level independent directors were Li Yongwu, former director of the State Bureau of Petroleum and Chemical Industry; Cui Junhui, former deputy director of the State Administration of Taxation; and Liu Hongru, former chairman of the China Securities Regulatory Commission.

According to public information, Liu Hongru was appointed as independent supervisor of the company in December 1999. After resigning as independent supervisor, he was appointed as independent non-executive director of the company from November 2002; Cui Junhui was appointed as independent non-executive director of the company from May 2008; Li Yongwu was appointed as independent supervisor of the company from November 2005, was elected as a member of the Standing Committee of the 10th National Committee of the Chinese People's Political Consultative Conference in 2003, and was appointed as independent non-executive director of the company from May 2005.

Survey

Wave of resignations of provincial/ministerial-level independent directors in May

The full withdrawal of provincial/ministerial-level independent directors from listed companies reached a peak in May this year. In addition to the above five senior official independent directors who voluntarily resigned, a considerable number of provincial/ministerial-level independent directors also left, accounting for at least one third of provincial/ministerial-level independent directors.

On May 6, China Merchants Bank issued an announcement that Xu Shanda, former deputy director of the State Administration of Taxation, resigned from his positions as independent non-executive director of China Merchants Bank, chairman of the remuneration and assessment committee of the board of directors and member of the audit committee.

On May 10, China Everbright Bank issued an announcement stating that Zhou Daojiong, member of the Financial and Economic Committee of the 9th National People's Congress and former chairman of the China Securities Regulatory Commission, had submitted his resignation to the board of directors of China Everbright Bank, and the board approved Zhou Daojiong's resignation application.

Listed company Chuantou Energy announced at the end of May that, in accordance with the new regulations of the Organization Department of the CPC Central Committee, independent director Zou Guangyan had submitted a written resignation application. The official website of the Sichuan Provincial People's Government shows that Zou Guangyan once served as vice governor of the Sichuan Provincial People's Government and other positions.

On November 11, 2013, China International Travel Service issued an announcement stating that independent director Wang Kaiyuan requested to resign as independent director due to age. Information shows that Wang Kaiyuan once served as deputy director of the Civil Aviation Administration of China and president of Air China. This was the first "provincial/ministerial-level" independent director in the A-share market to resign after the issuance of Document No. 18.

According to an incomplete tally by the reporter, in the more than half a year from the issuance of Document No. 18 to yesterday, at least 29 provincial/ministerial-level independent directors voluntarily resigned, involving 34 listed companies.

Analysis

The "revolving door between politics and business" has become a welfare benefit

According to statistics, 300 listed companies have issued announcements on the departure of nearly 260 independent directors, of which about 120 are "official independent directors." The much-criticized "revolving door between politics and business" in A-share listed companies is closing.

Some media pointed out that due to the limited number of former provincial/ministerial-level officials, in most cases officials below that level have become the main candidates for independent directors of listed companies, and this group has been most affected by Document No. 18.

Preliminary estimates show that in this wave of departures, there were 93 independent directors with resumes as party and government leaders below the provincial/ministerial level, accounting for 34.7% of the independent directors who left in this round. Most came from economic-related regulatory departments (excluding the central bank, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission), such as 5 from the National Development and Reform Commission system, 8 from the finance system, 4 from the industry and information technology system, and 3 from the state-owned assets system.

Seventeen officials from the "one bank and three commissions" (the central bank, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission), which have the closest relations with listed companies, also resigned as independent directors.

Pi Haizhou, a well-known financial commentator, believes that listed companies like to hire officials as independent directors mainly for the following two reasons: first, these officials or retired officials have abundant social resources, and hiring them as independent directors may help the company carry out related business; second, these people may have made certain contributions to the company's development in the past, and hiring them now and giving them some remuneration each year can also be regarded as a kind of thanks.

Some experts pointed out that the "revolving door between politics and business" created by official independent directors has become an unspoken rule in officialdom and has degenerated into a welfare benefit for the privileged class. For listed companies, officials can use the rich personal connections they formed in officialdom to channel special benefits to the company, thereby causing unfair competition in the market. However, due to the lack of effective supervision and the concealment of rules, it is highly likely to become a breeding ground for corruption.

Observation

The value of independent directors is difficult to reflect

Independent directors refer to directors who are independent of the company's shareholders and do not hold positions within the company, have no important business or professional connections with the company or the company's managers, and can make independent judgments on company affairs.

The independent director system was introduced to listed companies in 2001 as a sharp tool to check senior executives from harming shareholders' interests, and was once highly expected. At the beginning of the implementation of the independent director system, it did indeed give people a refreshing feeling. However, in the existing independent director appointment mechanism, chairmen and major shareholders mostly select independent directors based on their own interests. In particular, retired officials with close ties to major shareholders have gradually become popular candidates for listed companies to appoint as independent directors. Many independent directors can no longer play their due role.

Shui Pi, a well-known financial commentator, pointed out that independent directors are nominated by the board of directors, while chairmen and major shareholders mostly select independent directors based on their own interests. The selected independent directors often speak according to the interests of major shareholders, and it is difficult to reflect the value that independent directors should have.

On July 25 last year, listed company Sinotruk (Hong Kong) Limited welcomed three "provincial/ministerial-level" independent directors: Shi Xiushi, former governor of Guizhou Province; Han Yuqun, former governor of Shandong Province; and Cui Junhui, former deputy director of the State Administration of Taxation. Sinotruk issued an announcement stating that the three were appointed as independent non-executive directors of the company for a term of three years with an annual salary of 180,000 yuan. Twenty days later, the three independent directors, unable to withstand questions from many media outlets, announced their collective resignation.

Memory

Document No. 18 focuses on three directions

Information shows that since the Organization Department of the CPC Central Committee issued the "Opinions on Further Standardizing the Holding of Concurrent Posts (Positions) by Party and Government Leading Cadres in Enterprises" in October last year, A-share listed companies have set off a fierce wave of independent director resignations.

The "Opinions" stipulate three situations for party and government leading cadres holding positions in enterprises: the first targets party and government leading cadres who are currently in office or not currently in office but have not gone through retirement procedures, requiring them not to hold positions in enterprises.

The second targets party and government leading cadres who have resigned from public office or within three years after retirement, requiring them not to hold concurrent posts or positions in enterprises within the jurisdiction of their original post and within their business scope, and not to engage in related profit-making activities. Within this period, for those outside the jurisdiction of their original post and business scope, a strict reporting system is required.

The third targets party and government leading cadres who have resigned from public office or three years after retirement and take positions in enterprises. They should report to the party committee or party group of their original unit, the enterprise to be appointed should issue explanatory materials on the reasons for the appointment, and the party committee or party group of the unit should approve according to regulations and file with the corresponding organization and personnel department in accordance with the cadre management authority.

In addition, the "Opinions" also stipulate that party and government leading cadres approved to hold concurrent posts in enterprises shall not receive remuneration from the enterprise, shall not obtain equity or other additional benefits, shall not hold more than one concurrent post, and shall not serve more than two consecutive terms; the age limit for concurrent posts is 70 years old.