The State-owned Assets Supervision and Administration Commission of the State Council recently convened a meeting to advance the construction of boards of directors in central enterprises. The meeting set an ambitious goal: to achieve significant progress in the establishment and operation of boards at both the central enterprise group level and secondary subsidiaries by the end of next year. By 2029, a scientific, rational, and efficient board structure is expected to be fully established across all central enterprise subsidiaries.
In recent years, the construction of boards of directors has become a critical aspect of China’s modern enterprise system. Zhang Yuzhuo, Secretary of the Party Committee and Director of the SASAC, highlighted the strides made in board development under the guidance of the Organization Department of the Central Committee. A robust top-level design for board construction has emerged, coupled with a well-functioning operational mechanism, leading to the formation of a governance team unique to state-owned enterprises. The board’s roles in strategic decision-making, risk prevention, and organizational alignment with the Party Committee and executive management have been effectively integrated, allowing these boards to play a substantial role in promoting high-quality enterprise development.
Policies such as the “Working Rules for the Boards of Directors of Central Enterprises (Trial)” and the “Regulations on the Management of External Directors in Central Enterprises” have established a comprehensive system governing all facets of board operations, from formation and execution to evaluation and external director selection. Key measures have been implemented to ensure that significant operational decisions receive prior scrutiny from the Party Committee, along with the establishment of accountability lists and clear demarcation of responsibilities among the governing bodies.
Currently, central enterprise groups have adopted a system where the Party Committee Secretary also serves as the Board Chairman, with dedicated deputy secretaries joining the boards. Dai Houliang, Chairman and Party Secretary of China National Petroleum Corporation, expressed the deep understanding the enterprise has gained regarding the necessity of integrating strong Party leadership with effective corporate governance to translate the advantages of China’s modern enterprise system into actual governance efficacy.
Central enterprises like China National Petroleum Corporation have explicitly delineated the responsibilities of the Party Committee, the board, and management. The board plays a vital role in strategic planning while enhancing management through rigorous oversight and implementation of strategic initiatives. For instance, in recent years, the board has approved 50% to 70% of the group’s major investment projects, ensuring that core business development remains aligned with the strategic direction.
State Power Investment Corporation has successfully utilized its board to promote new strategic industries by holding various strategic seminars involving members from the Party Committee, the Board, and management. In 2023, revenue from strategic emerging industries surpassed 140 billion yuan, with 160 billion yuan invested in key technological research, material development, and major engineering projects.
The central government’s decisions, particularly those outlined in “The Decision of the Central Committee of the Communist Party of China on Further Deepening Reform and Promoting Chinese-style Modernization,” call for further enhancements to China’s modern enterprise system. The new Company Law emphasizes the significant role of the board.
The recent meeting emphasized the importance of targeting goals, identifying problems, and expediting the construction of scientifically guided, rational, and efficient boards. A focus on establishing a scientific governance framework is critical, aligning with the realities of state-owned enterprises for tailored governance solutions. This involves clear delineation of board responsibilities, ensuring an effective interaction among various governing bodies.
Moving forward, the SASAC plans to categorize and advance board construction in central enterprises, deepening efforts at both the group and subsidiary levels. Specifically, it aims to delineate which subsidiaries require board construction and establish that external directors should constitute a majority on these boards.
To optimize the function of boards, there’s a commitment to strengthening accountability in strategic decision-making, enhancing oversight roles, and consolidating audit and risk management functions within boards. As Zhang Yuzhuo emphasized, the boards need to focus on supporting national strategy and overcoming challenges affecting high-quality development.
Importantly, the effectiveness of boards relies on a strong team of directors. The chairman bears the primary responsibility for board development. SASAC representatives stress that the chairman must balance the responsibilities of rigorous Party governance with the demands of modern corporate leadership.
External directors serve as representatives of stakeholders. With updated regulations reinforcing their roles, these directors are tasked with safeguarding state capital interests and ensuring the board operates effectively. Recent strategies have ensured that external directors constitute a majority, chosen for their high qualifications and specialization. There’s a growing network of communication among external directors, management, and functional departments to ensure cohesive decision-making processes.
Former China North Industries Group Chairman Xu Ping, now external director at China Huaneng Group and General Technology Group, shared his insights on external directors embodying the role of “stakeholders” rather than mere outsiders. He stressed the importance of taking ownership and making value-driven judgments that guide companies to seize development opportunities while managing risks.
According to the new directives, the next step involves optimizing the role of external directors by including talent with expertise in emerging industries and fostering a diverse pool of leadership and oversight. This integrated approach aims to strengthen the corporate governance framework of central enterprises, enhancing both their performance and alignment with national objectives.
