Importance of Corporate Governance in China

Subject: Corporate Governance
Pages: 3
Words: 588
Reading time:
2 min

Corporate governance systems are the mechanisms that are set to ensure that the investors or the capital providers get adequate returns of their investments. The management of public-owned firms, as well as the private ones, is of great importance as far as the corporate governance is concerned. To ensure that this has been attained in China the government has embarked on various reforms. They include; controlling the decision of the managers by the use of board of directors, they are the ones that approve major budget aspects so as to ensure that the management does not use the companies fund for their own benefits. They act for the sake of the shareholders. As much as this has been implemented there is the threat that the management can still dominate the meetings and decisions since the chief Executive Officer of the company is mostly a member of the board.

However, to ensure that the managers are motivated, they are allocated a certain proportion of shares and in terms of remuneration, the boards of directors are voted by the shareholders and have a limited term in office. They are allowed to hold some shares and convey meeting with the management at any time. They are though subject to the legal framework governing meeting conveyance. Financial transparency is another area that the country has embarked on to protect their investors. All public companies are supposed to maintain effective internal control and must be audited yearly by an independent auditor and the findings given to the public. The stock exchange regulatory department ensures that before a company has been listed in the exchange, it has been listed for trading.

The accounting period in the country has been aligned with the international financial reporting and accounting systems. What to be disclosed is well defined to ensure that they give the correct information to assist the public make adequate decisions regarding the trading strength of the company. Any company that does not comply with these or is found to be operating ineffectively is deregistered as a player in the stock exchange. There is the recognition of shareholders’ rights, the shareholders are made to understand their rights and the way in which they can use the rights to influence the management of their company. Among the rights include the voting rights that they can use to influence the management. Major decisions in the company are passed in the general meeting and in case of an urgent matter a special general meeting is conveyed.

Regulatory systems, are the legal systems that are developed by the government to give the rules and guidelines to be followed by the companies. This is among others the laws regarding insider trading and the issue of dividends. China stock exchange is the one that is mandated to ensure that these rules are adhered to in all the trading companies. The qualifications of the holders of office are defined in the constitution of the company and the legal framework of the country. As the changes in the global management’s requirements, there is continuous training of the top management that is facilitated by the government. These are in areas of taxation and business trends in the country. They are also briefed on the monetary and fiscal policies in the country. This is in an effort to ensure that the management makes an informed decision.