(Guo Jing Mao Qi Gai [1999] No.230 on March 29, 1999)
Overseas listed company (hereinafter referred to as ‘ the company ’ ) is a company raising capital from overseas market and a kind of organization form under a modern enterprise system that has a higher requirement for corporate governance structure and information disclosure. Currently, most companies have made progress in their system innovation and business system conversion. Some of the companies, however, have yet to have their business system conversion completed with problems existing in their normative operation and internal management. To urge the companies to strictly abide by the relevant laws and regulations at home and abroad, assume continuous responsibilities for investors and build up sound images in the capital market at home and abroad, the State Economic and Trade Commission has stipulated the follow ing provisions on corporate normative operation and further reform:
1. Separating the Company ’ s Operational Organization from Shareholding Organization
The company shall rationalize its corporate management system in accordance with the modern enterprise system . The company and its shareholding organization (company or enterprise and institution with a legal person qualification, holding the company ’ s shares) shall undertake independent accounting and bear responsibilities and risks independently. T he shareholding organization mainly exercises the shareholder ’ s rights through the shareholders ’ meeting in line with the legal proceedings. T he organization of the company, especially the directorate, management, financial and sales departments shall be separated from the shareholding organization; those that have yet to complete their separation shall do so by the end of 1999. The internal departments of the shareholding organization do not have any superior-subordinate relationship with their counterparts of the company and shall not affect the independence of the company by way of such-as issuing documents.
T he shareholding organization dispatches shareholding representatives to the company ’ s directorate according to law. T he number of the senior management officers (board chairman, vice board chairman and executive director) of the shareholding organization, who holds the positions as concurrent board chairman, vice board chairman and executive director of the company, shall be no more than two. Moreover, the parties concerned shall have a good knowledge of their duties, undertake the legal responsibilities and rights endowed by their positions and secure a sufficient amount of time and knowledge in their own work. None of the management officers of the shareholding organization shall concurrently hold a position in the capacity of a manager, a deputy manager, a financial supervisor, a sales and marketing supervisor or a secretary to directorate in the company.
2. Further Deepening the Restructuring of the Shareholding Organization and the Company
In case the major business and assets of the state-owned shareholding organization have been included in the company, the shareholding organization shall transfer or incorporate its functions into other state-owned legal entities. In case the shareholding organization possesses other assets and business apart from the company ’ s business, the shareholding organization shall reduce the related transactions with the company to avoid a horizontal competition.
The shareholding organization shall separate step by step its function of running a society and non-operational assets and materialize the socialized operation through auction, merger and acquisition, handover to local government, and incorporation of them into local social security system. For those that are difficult to be separated at the moment, strict administrative measures shall then be formulated to ensure the separation from the company in the aspects of finance and personnel.
While separating the function of running a society and non-operational assets, the company shall strictly carry out the agreement signed b y the company and its shareholding organization while restructuring for listing. Those that have made incomplete separations shall continue to complete their separation within the prescribed time limit. Newly listed companies shall work out specific schemes for separating the function of running a society and non-operational assets and specify responsibilities and solutions to the unsolved problems before being listed. Otherwise, they will not be approved for listing. Governments at all levels and the relevant departments shall take active measures to support the restructuring of the company and its shareholding organization.
3. Specifying the Decision-making Procedures of the Company and Strengthening the Responsibilities of Directors
The company shall specify its decision-making procedure in the articles of association. The company shall not make its decisions by any other form (such as joint conference) than shareholders ’ conference or directorate. In case of a significant event that requires a discussion by the company ’ s directorate, all the executive directors and external directors (directors who do not hold positions in the company) shall be informed in advance at an appointed time and provided with sufficient materials, and the decision-making shall be conducted strictly in conformity with the prescribed procedure. The directors can request supplementary materials. In case over a quarter directors or more than two external directors deem the material is insufficient or the argument unpersuasive, they can jointly propose a postponement of the board meeting or a discussion on part of the items on the agenda. In such case, the directorate shall accept the request.
The directors of the company bear the responsibilities of integrity and diligence. The directors shall adopt earnest and conscientious attitude in attending a directorate meeting and express their clear opinions on the items under discussion. In case a director, who is not able to attend the meeting, shall not consign his/her voting right, but can write a letter of authorization to entrust some other director to take his/her place. And in a case like this, he/she shall bear legal responsibilities independently. A written resolution that is not formed in accordance with the legal procedure and signed by the directors shall not be considered as a legally effective resolution passed by the directorate, even though all the directors have expressed their respective opinions. The directors who voted for a resolution that is found to be in conflict with the laws, administrative regulations and the articles of association shall bear direct responsibilities ; the directors, who prove to have expressed dissent as recorded in the meeting minutes and voted against the resolution, are exempted from the responsibilities; the directors, who abstain from voting, or are absent from the meeting and fail to entrust other persons to take their places, are not be exempted from the responsibilities; and the directors, who have expressed their clear dissent during the discussion but refused to vote against the resolution, are not be exempted from the responsibilities , either. T he directorate shall make complete records of the resolutions and items discussed at the meeting. The secretary to the directorate shall earnestly record and arrange the items discussed at the meeting, sign the resolutions and bear the responsibilities to make accurate records.
4. Strengthening the Strategic Decision-making Function of the Directorate and Making Good Use of the S ocial Resources in Consultancy
The directorate of the company shall focus their efforts on the research of the long-term development strategy and can, according to needs, set up professional commissions including strategic decision-making commission and auditing commission. Before making a decision in the area like market development, merger & acquisition, and investment in some new fields, the company shall invite a consultative organization to provide professional opinions, which will be regarded as an important basis for the decision-making of the directorate, on the projects whose investment amount or assets amount for merger & acquisition account for over 10% of the company ’ s total assets.
5. Maintaining the Stability and Improving the Personal Quality of the Company ’ s S enior Managerial Staff
T he election, appointment or engagement of the company ’ s senior management officers (directors, supervisors, managers, deputy managers, chief financial officers and secretary to directorate) shall strictly comply with the relevant provisions of the “ Company Law of the People ’ s Republic of China ” (hereinafter referred to as the “ Company Law ” ) and the “ C ompulsory P rovisions on Articles of Association of the Company Listed Overseas ” (hereinafter referred to as the “ Compulsory Provisions ” ). Without special reasons, the senior management officers shall not be changed within the term of office as prescribed by the articles of association; in case a change is found necessary, legal procedures and proceedings shall be fulfilled and the change shall be disclosed to the general public and reported for recording to the China Securities Regulatory Commission (the CSRC). Relative stability in the positions of board chairman and managers of the companies with outstanding business performance sh all be maintained.
T he directorate and management of the company shall acquire reasonable knowledge and recruit professional talents in the fields of development strategy, accounting, sales and marketing, technical development and law affairs. T he company ’ s board chairman, manager, chief financial officer and secretary to directorate shall take part in the training, accredited by the CSRC, for knowledge about overseas listing and pass the qualification test. The company shall appoint through selection excellent senior management officers in accounting, market development and technical development at home and abroad.
6. Gradually Establishing External Director System and Independent Director System
T he company shall increase the proportion of external directors. When the election of the directorate is held, the number of external directors shall account for over 1/2 of the total number of the directorate plus more than two independent directors (director who is independent from the company ’ s shareholders and holds no position in the company). T he external directors should assure to devote enough time and necessary knowledge to their job duties. When the external directors perform their duties, the company shall provide necessary information and material s. T he opinions expressed by the independent directors shall be recorded in the resolution of a directorate meeting. T he company ’ s relevant transactions do not take effect until signed by the independent directors. T wo independent directors or more can propose the convening of a special meeting of shareholders. Independent directors can directly report to the board of shareholders, the CSRC and other relevant authorities.
7. Enhancing the Construction of the Company ’ s Board of Supervisors
T he company shall continuously enhance the functions of the board of supervisors, specify the responsibilities and power, and formulate detailed work rules and discussion procedures to avoid the formalis m in the board of supervisors. As the principal responsibility is to conduct financial inspections, the company ’ s board of supervisors has the right to know and inquire about the company ’ s operation status and ask the secretary to the directorate and the financial department for the relevant materials according to the regulated procedures , and shall assume the corresponding confidentiality obligation . T he board of supervisors can make suggestions to the company ’ s engagement of an accounting firm , entrust, when necessary, an accounting firm to audit the company ’ s finance independently in the name of the company, and report to the CSRC and other relevant authorities directly. T he relevant state authorities can commission the company ’ s board of supervisors to make investigation into some special cases. The company shall increase the proportion of the external supervisors (supervisor who holds no position in the company). When the election of the board of supervisors is held, the number of the external supervisors shall account for over 1/2 of the number of the board of supervisors plus more than two independent supervisors (supervisor who is independent from the company ’ s shareholders and holds no position in the company). T he company ’ s external supervisors shall report the senior managerial officers ’ performance of integrity and diligence independently to the board of shareholders.
8. Giving Full Play to the Functions of Secretary to the Directorate
T he company ’ s secretary to the directorate is appointed and authorized by the directorate to take charge of the coordination in and organization of the company ’ s information disclosure and the liaison with the investors , securities regulatory institutions and news media. T he company ’ s directorate and management shall consciously improve the transparency of the company, actively support the duty performance of the secretary to the directorate, and provide necessary guarantee in terms of working organization and personnel allocation.
9. Exploring the Incentive Measures for the Company ’ s S enior Management Officers
After taking its own characteristics in operation into consideration, the company can link the material interests of the company ’ s senior management officers with the company ’ s performance to design their respective unique distribution and reward measures in accordance with the principle of income disclosure with increased transparency . With the approval by the board of shareholder s , the company can adopt appropriate forms to reward the company ’ s senior staff who have made special contributions in their positions that are demanding in high technological innovation and operation risks, big challenges, and low performance evaluation requirements.
10. Deepening the Company ’ s Internal Reform
T he company shall guard against and alter the tendency to stress funds-raising and neglect system transformation; and organize the production and operation activities, deepen the internal reform, and transform the operation system to establish a scientific and effective management system in line with the requirements of the market competition.
T he company can make its own decisions on the internal organizational structure and the conditions, modes, quantity and time for recruitment. T he company can lay off an employee for economic reasons by dissolving the labor contract signed with the employee; disengage or dispel an employee according to the relevant laws, regulations and the articles of association. T he company shall cancel the titles of “ cadre ” and “ worker ” , break up the limits in identity and position, and carry out the system of competition for jobs and elimination through competition in management officers and shall n ot use indiscriminately the administrative hierarchy of government organizations.
T he company can make its own decisions on total annual payroll amount and internal distribution measures.
T he company shall carry out the housing reform and stop welfare-orientated public housing distribution for employees according to the relevant regulations in China. Besides, the company shall participate in the reform on social security system to take out endowment, employment and medical insurances for its employees according to the relevant regulations in China.
11. Separating Government from Enterprises to Regulate the Contribution Relations between Shareholders and the Company
T he administrative superior-subordinate relationship between the company and the government authorities shall be terminated and the relations between the company and the government authorities in the aspects of assets, finance and personnel management totally eliminated. T he government authorities shall not intervene in the company ’ s production and operation management, nor charge on the company in any form any administrative expenses or supervision fees.
T he shareholders ’ representative, appointed by the structures that exercise the company ’ s state-owned shares rights or shareholding organizations that exercise the company ’ s state-owned legal person shares rights, shall attend the shareholders ’ meeting in accordance with the legal procedures to exercise the rights according to law. No shareholder ’ s organization and its appointed representative can intervene in the company ’ s production and operation management over the matters related to appointment or dismissal of a company ’ s senior management officer unless permitted by the shareholders ’ meeting, or handle the approval procedures with regard to a resolution by the shareholders ’ meeting on personnel election or a resolution by the directorate on personnel appointment.
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