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Reported by Zhong Deyou; edited by Cui Rubo
Sinochem International Corporation ("Sinochem International") was established in Beijing in 1998 and was listed in Shanghai Stock Exchange (SSE) in 2000. From 1999 to 2002, the company has got in the list of Top50 listed companies of SSE and Fortune Top 100 Chinese Listed Companies. It was also incorporated into the 180 index of SSE from 2002 to 2004. In the selection of "the Best and Worst Board of Directors in 2004", Sinochem International won the best award. Co-hosted by Directors&Boards Magazine and the DongShiHui.com, the activity was executed by Beijing Liancheng international consulting Co.Ltd. and supported by the research center of economic and social development of Yangtze River Delta in Nanjing University. About ten experts of corporate governance from both home and abroad participated in the event.
ceaselessly strengthening the self-cultivation of the board of directors
with non-stopping efforts made by Sinochem International's board of directors in the governance mechanism cultivation, the company's level of corporate governance gets enhanced continuously and the governance structure gets sustainable perfection. So far, in the board of directors, there are four exclusive directors, accounting for 40% of the total directors, who respectively take the position of the chairmen of the three core committees of the board of directors, namely, the nomination and corporate governance, audition and risk, as well as remuneration and examination. These special committees are responsible for discussing putting important decision-making affairs to the board of directors after discussion so that the stimulus and supervisory function of exclusive directors can be played into full in the decision-making of the board of directors. For instance, the committee of nomination has added something about corporate governance to their original responsibilities and changed its name to the committee of nomination and corporate governance, which has played important role in making some important decisions such as the S&P evaluation, administers shifting, the change and nomination of the board of directors, and the formulation of rules guiding the governance, etc. The audition committee led by exclusive directors, has not only given diagnosis to and proposed the report of improvement on the inner controlling system, but has also updated the selection procedure of accounting firms and put it into practice. Through discussion with various types of professional intermediary agencies, the committee of remuneration and examination has designed the tools for medium or long terms of inspiration, such as enterprises annuity and deposit plan, which tied up the economic interests of the company's administers with the business performance and stock price of the company, thusly paving the way for the medium and long term development of the company. The committee of strategy, through their in-depth research on the industrial chain of the company, has further refined the chain of strategic value, and has been strict on the selection of concrete project. By means of all those positive measures, Sinochem International has enhanced its ability of corporate governance.
In Feb. 2004, Sinochem International engaged S&P to provide consultancy on the corporate governance, which is the first time for an international independent rating agency to pay service to the A Share listed company on its corporate governance. Through the objective analysis from the third party, the board of directors has find out the distance between the company and the international standard, as well as excellent listed companies, which provided references for the improvement of the company's corporate governance and created conditions for the company to expand its international businesses, to enter into alliances with more multinationals and the entrance of QFII.
After the result of rating was announced, on the basis of detailed analysis on the S&P's report, the nomination and corporate governance committee proposed a series of suggestions to make improvement, according to which the board of directors has freshened the company's corporate governance in many aspects, thereby shrinking the distance between them and international advanced standard. For example, the company has established the mail box on the company's website for shareholders' registration, where shareholders could register their detailed addresses for receiving public information delivered by the company such as the annual report and materials for shareholders' meeting, etc. From G.M. to new employees, everybody in the company has signed a commitment letter of individual honesty including 12 causes, so that their behaviors could comply with the State laws and regulations as well as the company's requirements, thusly creating an corporate culture atmosphere featured with justice, fair and openness. The company also invited Deloit, rich in international auditing experiences, as its audition agency through open tendering, on purpose of promoting the gearing of the company with international standard in terms of financial information. What's more, the company also established enterprise annuity and deposit plan, made research on and designed tools for the medium and long term inspiration like the equity inspiration, in order to build a remuneration inspiration system with the combination of multi-terms of inspirations and diversified tools and multi-level subjects of inspiration, through which the convergence of the interests among employees, managers and shareholders.
Unswervingly sticking to the determination and direction of strategic transition, and persisting in working on the promotion of the company's strategy, the board of directors tried to create favorable environment and conditions for implementation of the strategy through effective allocation of various materials. For instance, in terms of human resources, it has successively introduced many elites from famous enterprises both home and abroad, including general managers, vice general managers and chief accountant, all of whom are in urgent need by the company for its strategic development. The gathering and interaction between those people and talents that company has already had, promoted a more optimized system of HR coming into shape, offering sufficient impulsion to the earlier realization of the company s strategic transition.
Perfect governance of the board of directors boost the enhancement of business performance
Under the powerful support, supervision and guidance from the board of directors, news of success in the company's extension to upstream and downstream industry are successively reported in 2004. For example, the environmental coolant project with annual output of 5000 tons of Sinochem Modern Times Environmental Chemical (Xi'an) Co. Ltd was completed and put into operation, with its products winning 30% of the market share the same year. Hainan Sinochem Shipment together with U.S. STOLT gained the inner trade franchise for joint-ventures among the first group, well-prepared for embracing the market opportunities of dramatic increase of the demand for chemical inner trade shipment. Shanxi Huanda metallurgical project has got certain productivity and its technology of environmental metallurgical coals has also got updated. Especially in Oct. 2004, the finish of the first production line of Taicang PTMEG project with annual output of 20000 tons and its success in trial operation, have accumulated experiences for the promotion of the company's strategy and have brought up a group of talents in R&D, production and marketing. The construction of ABS project with annual output of 60000 tons, on the basis of the PTMEG has also started in Taicang. In addition, the first rubber production project of the company, Yunnan Natural Rubber Co. was officially inaugurated, with portion of its equity belongs to Hainan Sinochem Anlian Co., signifying the beginning of the company's extension to the upstream rubber industry. All in all, with those projects referred above successively finished and put into operation, they are going to bring more profits for the company. In 2004, as the leader of domestic chemicals trade enterprises, Sinochem International maintained its status in selling goods such as metallurgical coal, rubber and relative products, and olefin, etc. With regular corporate governance mechanism, business experiences for years, as well as constant expansion and consolidation of the production and sales chains of upstream and downstream, the company's business scale and performances have again hit a record high after 2002 and 2003. In 2004,the company recorded a revenue of 13006.1834 billion Yuan, with a year-by-year increase of 18.44%, and recorded a net profit of 797.7011 million Yuan, with a year-by-year increase of 54%. The company's profit-earning ability has been greatly enhanced, with 1.04 Yuan in cash earned from each stock of operating activities and an EPS as high as 0.98 Yuan. In the same year, Sinochem International has also put forwarded a favorable scheme for bonus issuing, which is for each ten shares bought, two shares are presented, three shares are converted and an interest of 2.5 Yuan is presented. Statistics show that, together with the dividend issued this time, for five years since being listed, Sinochem International has totally issued cash bonus of 605.5 million Yuan. And if the bonus issued in the mid 2003 when two shares were presented for each ten shares bought and bonus going to be issued this time are added, investors have earned the repay of most of the capital raised through IPO, which are 0.96 billion Yuan, in the form of bonus and dividends.
Experiences for success: the enlightenment of improving the board of directors
Firstly, the independence and the system cultivation of the board of directors should be reinforced.
It is the most important thing in the reform of the board of directors, to strengthen the independence of the board of directors of listed companies, which will thusly not be entirely caught hold of by big shareholders. We should perfect the composing of the board of directors, adjust the portion of external and internal directors, and increase the number of exclusive directors, who should form the committee of remuneration and examination, the nomination and the audition, while regularly hold the meeting of the board of directors without the participation of the administering authority and other non-exclusive directors. In mean time, the board of directors should be suggested to separately appoint the president and the board chairman, or to appoint an exclusive director to play the dominant role in coordination with other exclusive directors. And exclusive directors should enjoy an option of resignation, so that they could play their roles into full and big shareholders and insiders could also be prevented from embezzling the company's interest.
Secondly, to establish a scientific assessment mechanism on directors and to reinforce the punishment over directors breaking the rule.
The assessment on the board of directors could be carried on in two aspects: one is aiming at the whole group and the other is regarding to individual directors. Here, we can take reference from American way of assessment, which is to ask people unrelated with investment to assess the board of directors. To make evaluations over the governance of the board of directors, can on one hand attract investors, on the other hand promote the mutual understanding between the board of directors and the management panel, directors and exclusive directors, and enhance the status and function of exclusive directors. Not only the operation of the board of directors should be assessed, but the individuals should also be assessed from six aspects, namely, honesty, experience, knowledge, time devoted and obligations, teamwork spirit and interest conflicts.
The investigation on the decision-making responsibility of directors is a comprehensive legal issue, referring to solidity problems as well as procedure ones and having business with not only the administration according to law by law-enforcement agencies but also the guidance on behaviors of directors from listed companies as well as interest protection. Currently, the regulation and the standards for punishment regarding to this aspect are disunited. Since some of the regulations are temporarily formulated with regard to special situation in special time, they are lacking of due mutual connection and coordination. However, a unified and systematic system of investigation over the directors' responsibilities can effectively eliminate and solve the problems such as the nonfeasance and wide act of directors.
Thirdly, to strengthen the external supervision.
At present, the reason why problems of listed companies can be found everywhere is that flabby external supervision full of flaws has provided people with opportunities to take advantage of. To strengthen the external supervision, we should first formulate and consummate relevant laws and regulations step by step, establish a perfect system of information disclosure, which should give specific requirements about the timely and correct disclosure of company's information, and intensify the system of punishment over illegal behaviors. Besides, the supervisory function of the media should also be played into full, to keep the listed company under the eyes of the public and to add transparency.
(from the 4th issue of 2005 of the magazine "Corporate Civilization" ( the 209th of total issues) |
