Corporate Governance Bank of China

Corporate Governance is more than just corporate management. In broader sense, it includes a fair, efficient and transparent administration to meet certain well defined objectives. It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.

When it is practiced under a well-laid out system, it leads to the building of a legal, commercial and institutional framework and demarcates the boundaries within these functions are performed. Cadbury’s (2002) definition- “Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship to those resources.

The aim is to align as nearly as possible the interests of individuals, corporations and society. The investors should be concerned and aware of their companies’ corporate governance policies because it will a) Monitor the concerned company is on the right path in relation to the set objectives by articulating their investment objectives to the management. b) A strong good corporate governance policies being adhered can prove highly valuable and ultimately lead to a higher valuation of the company.

c) Most importantly, the shareholders would understand their basic rights and overall functioning of the company by the management. d) To know whether the board and the management in practicing good corporate governance. Reference for the Rules of Bank of China’s Corporate Governance- www. boc. cn/en/investor www. oecd. com www. bis. org/publ/bcbs176. pdf Books- 1) The Board of Directors 25 Keys to Corporate Governance- ???? 2) Corporate Governance Robert A. G. Monks & Nell Minow? Top 10 corporate governance rules of bank of china Bank of China Limited Articles of Association Grade 9/10 1.

The guideline in this relating to Articles of Association is the most important essence of a company like a backbone because it is the contracts between company and member of the company and between the members inter se. It is important as they are the regulations that govern the relationship between shareholders and directors. The AOA is required for the establishment of a company under law and it governs the law of issuing shares, voting and dividend rights etc.

The Bank of China has very cleared laid AOA whereby the parties involved or binding to be involved duly understand the guidelines and expected responsibilities in the event of involving in any business with the company. Procedural Rules for Shareholders’ Meeting Chapter 1 General Provisions Grade- 8/10 2. This rule is of utmost importance in my opinion since it is formulated with the Procedural Rules for Shareholders referred as “Procedural Rules” with the whole purpose of ensuring that the shareholders to understand their functions and powers and shareholders’ meeting to be operated smoothly and bind with the Company Law of the country.

The Company i. e. Bank of China does abide by the law and follows the code that they have formulated to ensure and set an example as a pioneer in positive corporate governance, therefore average investor is protected under the procedural rules as Board of Directors role is to oversee the legality of the shareholders’ meeting and that all legal formalities and issues are valid. Chapter 2 Functions and Powers of Shareholders’ Meeting Grade 7/10 3. This rule i. e.

Article 6 is the body of authority of the Bank and as such will decide the business operation policies, review and approve material investment during shareholders’ meeting for approval. Further the right to elect and replace directors and supervisors as well as examination and approval of board of directors and supervisors and approval of Bank’s annual financial budget and financial statements and have a say in profit distribution and loss make up etc. are very essential for the transparency of the company’s effective functioning. The company does abide by the guideline and ensures that the aforesaid procedures are put into practice.

The guideline affects the average investor as their voice is being heard incase of any slack in their responsibilities and which in reciprocate by protection of the average investor at all cost. Procedural rules for Board of Directors Chapter 3 Functions and Powers of Board of Directors Grade 7. 5/10 4. The directors and the boards functions and powers are duly mentioned and as such all the concern parties like the shareholders’ and other independent agencies as such know the boards functions and that to what extent the board can exercise their powers and in what situations, e.

g. in appointing or dismissing of the bank’s president, Board secretary or the Chairmen of the special committee etc. In my opinion, the SOEs corporate governance doesn’t really present a clear picture in the case of China and India as well for that matter. There is enough evidence of the good functioning of the directors’ roles and responsibilities of Bank of China but on the other hand in certain cases average investor should keep a vigilant eye on their companies operations as any haywire will lead to average investor losing their investment.

Chapter 4 Working Rules for Board of Directors Grade 8/10 Section 1 Working Method Section 2 Rules of Meeting Section 3 Rules of Written Resolutions Section 4 Implementation and Follow Up of Resolutions Section 5 Working Language and Written Format Section 6 Notices 5. The Board does a lot more than just collect a fee and the above mentioned rules (section 1-section 6)and therefore the clearly depicted guidelines are the basis of good functioning of the Board of Directors is the supervisor for the shareholders, and also as a strategist.

So therefore, the Board should be very well aware of their guidelines and as such can lead the enterprise. The average investor interest is protected and catered to and the company’s corporate governance because for all the rules there is a clear directive whereby the Board has to imply the rules and follow up on resolutions and notices with swift actions taken whenever needed.

Chapter 5 Coordination and Communication Grade 7/10 Section 1 Communication with Special Committees Section 2 Communication with the Management Section 3 Communication with the Board of Supervisors Section 4 Communication with the Shareholders

6. The very essential of any relationship be in business or other is communication and there should be coordination from the Board keeping the interest of the shareholders and investors in mind. Also the directors of such companies being the managers of other peoples’ money than their own, it cannot well be expected that they would watch over it with the same anxious vigilance like their own so there should be continuous and thorough communication and coordination with all the aforesaid parties.

This company Board has solid track record as per their resume and doing justice. Procedural Rules for Board of Supervisors Chapter 1 General Provisions Grade 8/10 7. The general provisions of procedural rules for Board of Supervisors is to be clearly written about the supervisors functions and powers within the limitation of laws with the sole objective of taking any action within the law as laid by the Bank of China and as well the Corporate Law of the country. Also the Board is the supervisory body of the Bank and responsible to the Shareholders’ meeting.

The company fully abides by the law and as such the company being a State Owned Enterprise is in unique position being one of the largest banking corporation in China is under a strict vigilant watch and therefore protects the rights of the average investor to a great degree but there is scope for more improvement. Chapter 2 Composition of the Board of Supervisors Grade 6. 5/10 8. The name of the proposed board is elected by the shareholders’ of the company and composed of the bank staff, external supervisors (atleast two) and supervisors.

The guideline states the rules and methods of tenure for the supervisors as well election. This guideline very clearly demands the mode in which a prospect is chosen, he or she should be filling the criteria which is mentioned as in the guideline. This way the bank ensures that the corporate governance of the company is put in right circumstances and transparency is ensured where the average investor say matters and their voice is not unheard in the events arising. Information Disclosure Policy Grade 7. 5/10 9.

The governance of the bank should be adequately transparent to shareholders, depositors, other relevant parties. Information Disclosure policy is essential for sound and effective corporate governance. As such the bank transparency is very important however in real sense for shareholders, investors, stakeholders and depositors and market participants, it is very challenging to hold the board and management accountable but being a SOE transparency is much more detailed and the bank does disclose all the relevant information that supports the key areas of corporate governance identified by the bank.

The disclosure is accurate, clear and presented in an understandable manner in such a way that all the parties (external and internal) can consult it easily. All the materials like the regular reports are disclosed without any undue delay. Rules Governing Persons with knowledge of Grade 8/10 Inside Information of Bank of China 10. The purpose of regulating the management of inside information i. e. the objective of binding the employees and the Board by law in terms of confidentiality of banks’ internal affairs, ensuring equality and fairness of information disclosure in accordance with the stated number of governing bodies.

The Board of Directors is the administrative body of inside information management and term as the Board and responsible for accurate and complete information. Further the rules and responsibilities are mentioned in a detailed and thorough way for all the management to be legally responsible in the event of the understanding being broken. The Bank has been great example for promoting an environment supportive of corporate governance and the bank has an important role in developing guidance and assessing bank corporate governances.

Therefore, the guideline plays a pivotal role by standardizing rules for governing persons with knowledge of banks inside information. Conclusion The Bank of China overall grade from my perspective is 8/10. The Bank is ensuring a improved corporate governance but with the concept of corporate governance is marginally new and it is the case of doing by learning. On other hand, the very well structured rules and regulations will assist in realizing improved corporate governance legal issues such as protection and promotion of rights of shareholders and clarification of roles of corporate bodies.

Countries like China and India faces special challenges in enhancing corporate governance. The basic framework and mechanisms for corporate governance which have evolved in developed economies such as effective legal framework and sound management that is just and fair is weak and missing in transition economies. However, in case of the Bank giving financial aids to big manufacturers who have been found to be dumping wastes in the rivers should be investigated and actions taken to set an example of good corporate governance. This is very much left desired.