Where China Lags Behind

A new study of corporate governance in China paints a sobering picture. Few Chinese corporations of any sort elect foreigners to their boards, and most have a “weak board and strong chairman,” reflecting Chinese cultural norms. The study was conducted by Heidrick & Struggles in cooperation with the School of Management at Fudan University in Shanghai. The researchers examined state-owned enterprises, private enterprises and foreign-invested enterprises.

Few Chinese boards have influence over the selection of a chief executive officer, partly because the CEO is often the founder and has packed the board with friends, family and insiders. “These differences in board composition and power among state-owned enterprises, private enterprises and foreign-invested enterprises indicate there is still a long way to go before boards in China reach maturity,” the study said. “However, based on our research, we believe leading companies are showing others the way toward a more Western style of corporate governance, albeit with Chinese characteristics.”

One factor that is encouraging better governance is the U.S. Sarbanes-Oxley Act, which covers companies listing on the New York Stock Exchange and NASDAQ. “As a record number of Chinese companies become listed on bourses around the world, local companies have become keen observers of corporate governance changes promulgated by corporate scandals abroad,” the study said.