Corporate governance and

its practices in Shanghai

Stock Exchange

Dr. HUANG Jianshan

Shanghai Stock Exchange Research Center

June 13, 2011

Corporate governance Framework in China

Independent directors in China

Corporate governance practices in Shanghai Stock Exchange

Future Development

1. Corporate Governance framework in China

Legal framework of CG for listed companies:

Basic laws: Company Law, Securities Law, and so on.

Administrative regulations: Circular of the State Council on its Approval of the CSRC’s Opinion on Improving the Quality of Listed Companies, and so on.

Regulatory provisions: CG Code, and so on. Self-disciplinary rules: Listing Rules, and so on.

1. Corporate Governance framework in China

Institutional framework for CG of listed companies

CSRC

Government agencies related to CG

Stock exchanges and security registration and

settlement company

1. Corporate Governance framework in China

(5)Stakeholders

and Corporate Social Responsibility

(5)Stakeholders

and Corporate Social Responsibility

(4)Board Responsibility

and Supervision

(4)Board Responsibility

and Supervision

(3)Information Disclosure

(3)Information Disclosure

(2)The EquitableTreatment ofShareholders

(2)The EquitableTreatment ofShareholders

(1)The Rights ofShareholders

(1)The Rights ofShareholders

CG in ChinaCG in China

Main contents of corporate governance system in China

1. Corporate Governance framework in China

Shareholders General MeetingShareholders General Meeting

Board of DirectorsBoard of Directors Board of Supervisors

Board of Supervisors

Special Committees

Special Committees

ManagementManagement

2. Independent directors

Independent Directors：

• Engage external auditors and consultancies

• least 1/3 of the board of directors should be independent directors

• least one professional accountant

• Major related party transactions approved by at least half of all independent directors

• Expenses incurred carried by listed companies

One of important aspects: independent directors

2. Independent directors

Scale distribution of Independent directors

8

34

453

181

54

10 5 11.36% 0.68% 0.14%

7.32%

24.53%

61.38%

4.61%

0

50

100

150

200

250

300

350

400

450

500

2 3 4 5 6 7 8

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Data from SSE survey

No. of listed companies

No. of independent directors per company

2. Independent directors

Age distribution of independent directors

9

Data from SSE survey

2. Independent directors

Education background

survey in June, 2010

number of independent directors

proportion

Ph.D. 880 32.05%

master 661 24.07%

Bachelor 945 34.41%

junior college 221 8.05%

under junior college 39 1.42%

Total 2746 100%

10

Education background distribution of independent directors

Data from SSE survey

2. Independent directors

Allowance distribution of listed companies

11

2. Independent directors

Origin of independent directors

12

3. Corporate Governance Practices in SSE

Shanghai Stock Exchange: Blue-chip Market

（ 1 ） Corporate governance research and forum

（ 2 ） Amend and perfect corporate governance rules

（ 3 ） Corporate governance ETF and corporate social

responsibility ETF

（ 4 ） International cooperation and openness

3. Corporate Governance Practices in SSE

Annual Corporate Governance Report

• Starting from 2003, SSE has issued Corporate Governance

Report year after year.

Annual Corporate Governance Forum

• Year after year, SSE has hold Corporate Governance Forum on

December 18, a day before SSE birthday since 2002.

• Corporate Governance Awards

（ 1 ） Corporate governance research and forum

3. Corporate Governance Practices in SSE

（ 2 ） Amend and perfect corporate governance rules

SSE actively participates and promotes amendment of

Company Law, Securities Law and etc.

SSE continuously perfects related corporate governance

rules, listing rules and so on, cooperating with legislation,

administrative and academic institutions.

Establish delisting system of listed company.

3. Corporate Governance Practices in SSE

Corporate Governance Sector

• Stocks in SSE Corporate Governance Sector are selected by SSE and

China Securities Index Co., Ltd.

• Selection procedure: voluntary application, public appraisal,

consultants’ appraisal, preliminary selection and the advisory

committee’s discussion.

• 242 listed companies in CG Sector in 2010.

Corporate Governance Index

• Corporate Governance Index

• Exchange Traded Fund based on CG index

（ 3 ） Corporate governance ETF and corporate social

responsibility ETF

3. Corporate Governance Practices in SSE

Corporate Social Responsibility Index

• Shares in SSE Corporate Governance Sector

• Ranking by social contribution value per share and selecting

the top 100 stocks

CSR ETF

• Exchange Traded Fund based on CSR index

（ 3 ） Corporate governance ETF and corporate social

responsibility ETF

3. Corporate Governance Practices in SSE

（ 4 ） International cooperation and openness

Cooperation between SSE and IFC

• IFC offered professional comments on the Code of Conduct for Directors of

Listed Companies in SSE.

• SSE collaborated with IFC to pioneer sustainability disclosure requirements

for listed companies.

• IFC made an excellent speech at “the 9th China Corporate Governance

Forum”, last year in Shanghai.

Cooperation between SSE and OECD

• OECD-China policy dialogue on corporate governance began in 2004.

• OECD-China corporate governance joint assessment programme was

formally launched in 2009.

4. Future development

• Establishing and amending relevant regulations and rules

• Standardization of Internal Control of listed company

• Support development of diversified investment product

based on CG Index and CSR Index.

• Comprehensive International Cooperation

Future development of corporate governance in SSE

Thanks