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China Securities
Regulatory Commission; State Economic and Trade Commission
Zhengjianfa No.1 of 2002
Code of
Corporate Governance for Listed Companies
Preface
In accordance with the basic principles of the Company Law, the
Securities Law and other relevant laws and regulations, as well as
the commonly accepted standards in international corporate governance,
the Code of Corporate Governance for Listed Companies
(hereinafter referred to as "the Code") is formulated to promote the
establishment and improvement of modern enterprise system by listed
companies, to standardize the operation of listed companies and to bring
forward the healthy development of the securities market of
our country.
The Code sets forth, among other things, the basic principles for
corporate governance of listed companies in our country, the means
for the protection of investors'' interests and rights, the basic
behavior rules and moral standards for directors, supervisors,
managers and other senior management members of listed companies.
The Code is applicable to all listed companies within the boundary of
the People''s Republic of China. Listed companies shall act in
the spirit of the Code in their efforts to improve corporate governance.
Requirements of the Code shall be embodied when listed
companies formulate or amend their articles of association or rules of
governance. The Code is the major measuring standard for
evaluating whether a listed company has a good corporate governance
structure, and if major problems exist with the corporate governance
structure of a listed company, the securities supervision and regulation
authorities may instruct the company to make corrections
in accordance with the Code.
Chapter 1. Shareholders and
Shareholders'' Meetings
(1) Rights of Shareholders
1. As the owner of a company, the shareholders shall enjoy the legal
rights stipulated by laws, administrative regulations and the
company's articles of association. A listed company shall establish a
corporate governance structure sufficient for ensuring the full
exercise of shareholders'' rights.
2. The corporate governance structure of a company shall ensure fair
treatment toward all shareholders, especially minority
shareholders. All shareholders are to enjoy equal rights and to bear the
corresponding duties based on the shares they hold.
3. Shareholders shall have the right to know about and the right to
participate in major matters of the company set forth in the
laws, administrative regulations and articles of association. A listed
company shall establish efficient channels of communication
with its shareholders.
4. Shareholders shall have the right to protect their interests
and rights through civil litigation or other legal means in
accordance with laws and administrative regulations. In the event
the resolutions of shareholders'' meetings or the resolutions of the
board of directors are in breach of laws and administrative
regulations or infringe on shareholders'' legal interests and
rights, the shareholders shall have the right to initiate litigation
to stop such breach or infringement. The directors, supervisors and
managers of the company shall bear the liability of compensation in
cases where they violate laws, administrative regulations or
articles of association and cause damages to the company during the
performance of their duties. Shareholders shall have the right to
request the company to sue for such compensation in accordance with
law.
(2) Rules for Shareholders'' Meetings
5. A listed company shall set out convening and voting procedures
for shareholders'' meetings in its articles of association,
including rules governing such matters as notification,
registration, review of proposals, voting, counting of votes,
announcement of voting results, formulation of resolutions,
recording of minutes and signatories, public announcement, etc.
6. The board of directors shall earnestly study and arrange the
agenda for a shareholders'' meeting. During a shareholders''
meeting, each item on the agenda shall be given a reasonable amount
of time for discussion.
7. A listed company shall state in its articles of association the
principles for the shareholders'' meeting to grant authorization to
the board of directors. The content of such authorization shall be
explicit and concrete.
8. Besides ensuring that shareholders'' meetings proceed legally
and effectively, a listed company shall make every effort, including
fully utilizing modern information technology means, to increase the
number of shareholders attending the shareholders'' meetings. The
time and location of the shareholders'' meetings shall be set so as
to allow the maximum number of shareholders to participate.
9. The shareholders can either be present at the shareholders''
meetings in person or they may appoint a proxy to vote on their
behalf, and both means of voting possess the same legal effect.
10. The board of directors, independent directors and qualified
shareholders of a listed company may solicit for the shareholders''
right to vote in a shareholders'' meeting. No payments shall be made
to the shareholders for such solicitation, and adequate information
shall be provided to persons whose voting rights are being
solicited.
11. Iinstitutional investors shall play a role in the appointment
of company directors, the compensation and supervision of management
and major decision-making processes.
(3) Related Party Transactions
12. Written agreements shall be entered into for related party
transactions among a listed company and its connected parties. Such
agreements shall observe principles of equality, voluntarity, and
making compensation for equal value. The contents of such agreements
shall be specific and concrete. Matters such as the signing,
amendment, termination and execution of such agreements shall be
disclosed by the listed company in accordance with relevant
regulations.
13. Efficient measures shall be adopted by a listed company to
prevent its connected parties from interfering with the operation of
the company and damaging the company''s interests by monopolizing
purchase or sales channels. Related party transactions shall observe
commercial principles. In principle, the prices for related party
transactions shall not deviate from an independent third party''s
market price or charging standard. The company shall fully disclose
the basis for pricing for related party transactions.
14. The assets of a listed company belong to the company. The
company shall adopt efficient measures to prevent its shareholders
and their affiliates from misappropriating or transferring the
capital, assets or other resources of the company through various
means. A listed company shall not provide financial guarantees for
its shareholders or their affiliates.
Chapter 2. Listed Company and Its Controlling Shareholders
(1) Behavior Rules for Controlling Shareholders
15. During the restructuring and reorganization of a company that
plans to list, the controlling shareholders shall observe the
principle of "first restructuring, then listing", and shall
emphasize the establishment of a reasonably balanced shareholding
structure.
16. During the restructuring and reorganization of a company that
plans to list, the controlling shareholders shall sever the
company''s social functions and strip out non-operational assets.
Non-operational institutions, welfare institutions and their
facilities shall not be included in the listed company.
17. Controlling shareholders'' remaining enterprises or
institutions that provide services for the major business of the
listed company may be restructured into specialized companies in
accordance with the principles of specialization and market
practice, and may enter into relevant agreements with the listed
company in accordance with commercial principles. Remaining
enterprises engaged in other businesses shall increase their
capability of independent development. Remaining enterprises not
capable to continue operation shall exit the market, through such
channels as bankruptcy, in accordance with relevant laws and
regulations. Enterprises meeting certain requirements during
restructuring may sever all their social functions and disperse
surplus employees at one time and keep no remaining enterprises.
18. The controlling shareholders shall support the listed company
to further reform labor, personnel and distribution systems, to
transform operational and managerial mechanisms, and to establish
such systems as: management selection through bidding and
competition, with the chance for both promotion and demotion;
employment of employees on the basis of competitive selection, with
the chance for both employment and termination of employment; income
distribution scheme that provides sufficient incentive, with the
chance to both increase and decrease the remuneration; etc.
19. The controlling shareholders owe a duty of good faith toward
the listed company and other shareholders. The controlling
shareholders of a listed company shall strictly comply with laws and
regulations while exercising their rights as investors, and shall be
prevented from damaging the listed company''s or other
shareholders'' legal rights and interests, through means such as
assets restructuring, or from taking advantage of their privileged
position to gain additional benefit.
20. The controlling shareholders shall nominate the candidates for
directors and supervisors in strict compliance with the terms and
procedures provided for by laws, regulations and the company''s
articles of association. The nominated candidates shall possess
certain relevant professional knowledge and the capability to make
decisions or supervise. The resolutions made by the shareholders''
meetings electing personnel or the board of directors'' resolutions
appointing personnel shall not be subjected to approval procedures
by the controlling shareholders. The controlling shareholders are
forbidden to appoint senior management personnel by circumventing
the shareholders'' meetings or the board of directors.
21. The important decisions of a listed company shall be made
through a shareholders'' meeting or board of directors'' meeting in
accordance with law. The controlling shareholders shall not directly
or indirectly interfere with the company''s decisions or business
activities conducted in accordance with laws; nor shall they impair
the listed company''s or other shareholders'' rights and interests.
(2) Independence of Listed Company
22. A listed company shall be separated from its controlling
shareholders in such aspects as personnel, assets and financial
affairs, shall be independent in institution and business, shall
practice independent business accounting, and shall independently
bear risks and obligations.
23. The personnel of a listed company shall be independent from
the controlling shareholders. The management, financial officers,
sales officers and secretary of the board of directors of the listed
company shall not take posts other than as a director in a
controlling shareholder''s entities. In the case where a member of a
controlling shareholder''s senior management concurrently holds the
position of director of the listed company, such member shall ensure
adequate time and energy to perform the work for the listed company.
24. The assets invested by a controlling shareholder in a listed
company shall be independent, complete and with clear indication of
ownership. Where controlling shareholders invest non-cash assets
into a listed company, ownership transfer procedures shall be
completed and explicit boundaries for such assets shall be
clarified. The listed company shall independently register such
assets, independently set up account for such assets, and
independently carry out business accounting and management for such
assets. The controlling shareholders shall not misappropriate or
control such assets or interfere with the listed company''s
management of such assets.
25. A listed company shall establish sound financial and
accounting management systems in accordance with laws and
regulations and shall conduct independent business accounting.
Controlling shareholders shall respect the financial independence of
the company and shall not interfere with the financial and
accounting activities of the company.
26. The board of directors, the supervisory committee and other
internal offices of a listed company shall operate in an independent
manner. There shall be no subordination relationship between, on the
one hand, a listed company or its internal offices and, on the other
hand, the company''s controlling shareholders or their internal
offices, and the latter shall not give plans or instructions
concerning the listed company''s business operation to the former,
nor shall the latter interfere with the independent operation of the
former in any other manner.
27. A listed company''s business shall be completely independent
from that of its controlling shareholders. Controlling shareholders
and their subsidiaries shall not engage in the same or similar
business as that of the listed company. Controlling shareholders
shall adopt efficient measures to avoid competition with the listed
company.
Chapter 3. Directors and Board of Directors
(1) Election Procedures for Directors
28. A company shall establish a standardized and transparent
procedure for director election in its articles of association, so
as to ensure the openness, fairness, impartialness and independence
of the election.
29. Detailed information regarding the candidates for directorship
shall be disclosed prior to the convening of the shareholders''
meeting to ensure adequate understanding of the candidates by the
shareholders at the time of voting.
30. Candidates for directorship shall give written undertakings to
accept their nomination, to warrant the truthfulness and
completeness of the candidate''s information that has been publicly
disclosed and to promise to earnestly perform their duties once
elected.
31. The election of directors shall fully reflect the opinions of
minority shareholders. A cumulative voting system shall be earnestly
advanced in shareholders'' meetings for the election of directors.
Listed companies that are more than 30% owned by controlling
shareholders shall adopt a cumulative voting system, and the
companies that do adopt such a system shall stipulate the
implementing rules for such cumulative voting system in their
articles of association.
32. Appointment agreements shall be entered into by a listed
company and its directors to clarify such matters as the rights and
obligations between the company and the director, the term of the
directorship, the director''s liabilities in case of breach of laws,
regulations or articles of association, and the compensation from
the company in case of early termination of the appointment
agreement for cause by the company.
(2) The Duties and Responsibilities of Directors
33. Directors shall faithfully, honestly and diligently perform
their duties for the best interests of the company and all the
shareholders.
34. Directors shall ensure adequate time and energy for the
performance of their duties.
35. Directors shall attend the board of directors meetings in a
diligent and responsible manner, and shall express their clear
opinion on the topics discussed. When unable to attend a board of
directors meeting, a director may authorize another director in
writing to vote on his behalf and the director who makes such
authorization shall be responsible for the vote.
36. The board of directors shall abide by relevant laws,
regulations, rules and the company''s articles of association, and
shall strictly fulfill the undertakings they made publicly.
37. Directors shall earnestly attend relevant trainings to learn
about the rights, obligations and duties of a director, to
familiarize themselves with relevant laws and regulations and to
master relevant knowledge necessary for acting as directors.
38. In cases where the resolutions of board of directors violate
laws or regulations or a listed company''s articles of association
and cause losses to the listed company, directors responsible for
making such resolutions shall be liable for compensation, except
those proved to have objected and the objections of whom have been
recorded in the minutes.
39. After approval by the shareholders'' meeting, a listed company
may purchase liability insurance for directors. Such insurance shall
not cover the liabilities arising in connection with directors''
violation of laws, regulations or the company''s articles of
association.
(3) Duties and Composition of the Board of Directors
40. The number of directors and the structure of the board of
directors shall be in compliance with laws and regulations and shall
ensure the effective discussion and efficient, timely and prudent
decision-making process of the board of directors.
41. The board of directors shall possess proper professional
background. The directors shall possess adequate knowledge, skill
and quality to perform their duties.
42. The board of directors shall be made accountable to
shareholders. A listed company''s corporate governance framework
shall ensure that the board of directors can exercise its power in
accordance with laws, administrative regulations and the company''s
articles of association.
43. The board of directors shall earnestly perform its duties as
stipulated by laws, regulations and the company''s articles of
association, shall ensure that the company complies with laws,
regulations and its articles of association, shall treat all the
shareholders equally and shall be concerned with the interests of
stakeholders.
(4) Rules and Procedure of the Board of Directors
44. A listed company shall formulate rules of procedure for its
board of directors in its articles of association to ensure the
board of directors'' efficient function and rational decisions.
45. The board of directors shall meet periodically and shall
convene interim meetings in a timely manner when necessary. Each
board of directors'' meeting shall have a pre-decided agenda.
46. The meetings of the board of directors of a listed company
shall be conducted in strict compliance with prescribed procedures.
The board of directors shall send notice to all directors in
advance, at the stipulated time, and shall provide sufficient
materials, including relevant background materials for the items on
the agenda and other information and data that may assist the
directors in their understanding of the company''s business
development. When two or more independent directors deem the
materials inadequate or unclear, they may jointly submit a written
request to postpone the meeting or to postpone the discussion of the
related matter, which shall be granted by the board of directors.
47. The minutes of the board of directors'' meetings shall be
complete and accurate. The secretary of the board of directors shall
carefully organize the minutes and the records of discussed matters.
Directors that have attended the meetings and the person who drafted
the minutes shall sign the minutes. The minutes of the board of
directors'' meetings shall be properly maintained and stored as
important records of the company, and may be used as an important
basis for clarifying responsibilities of individual directors in the
future.
48. In the case of authorization to the chairman of the board of
directors to exercise part of the board of directors'' power of
office when the board of directors is not in session, clear rules
and principles for such authorization shall be stated in the
articles of association of the listed company. The content of such
authorization shall be clear and specific. All matters related to
material interests of the company shall be submitted to the board of
directors for collective decision.
(5) Independent Directors
49. A listed company shall introduce independent directors to its
board of directors in accordance with relevant regulations.
Independent directors shall be independent from the listed company
that employs them and the company''s major shareholders. An
independent director may not hold any other position apart from
independent director in the listed company.
50. The independent directors shall bear the duties of good faith
and due diligence toward the listed company and all the
shareholders. They shall earnestly perform their duties in
accordance with laws, regulations and the company''s articles of
association, shall protect the overall interests of the company, and
shall be especially concerned with protecting the interests of
minority shareholders from being infringed. Independent directors
shall carry out their duties independently and shall not subject
themselves to the influence of the company''s major shareholders,
actual controllers, or other entities or persons who are interested
parties of the listed company.
51. Relevant laws and regulations shall be complied with for
matters such as the qualifications, procedure of election and
replacement, and duties of independent directors.
(6) Specialized Committees of the Board of Directors
52. The board of directors of a listed company may establish a
corporate strategy committee, an audit committee, a nomination
committee, a remuneration and appraisal committee and other special
committees in accordance with the resolutions of the shareholders''
meetings. All committees shall be composed solely of directors. The
audit committee, the nomination committee and the remuneration and
appraisal committee shall be chaired by an independent director, and
independent directors shall constitute the majority of the
committees. At least one independent director from the audit
committee shall be an accounting professional.
53. The main duties of the corporate strategy committee shall be
to conduct research and make recommendations on the long-term
strategic development plans and major investment decisions of the
company.
54. The main duties of the audit committee are (1) to recommend
the engagement or replacement of the company''s external auditing
institutions; (2) to review the internal audit system and its
execution; (3) to oversee the interaction between the company''s
internal and external auditing institutions; (4) to inspect the
company''s financial information and its disclosure; and (5) to
monitor the company''s internal control system.
55. The main duties of the nomination committee are (1) to
formulate standards and procedures for the election of directors and
make recommendations; (2) to extensively seek qualified candidates
for directorship and management; and (3) to review the candidates
for directorship and management and make recommendations.
56. The main duties of the remuneration and appraisal committee
are (1) to study the appraisal standard for directors and management
personnel, to conduct appraisal and to make recommendations; and (2)
to study and review the remuneration policies and schemes for
directors and senior management personnel.
57. Each specialized committee may engage intermediary
institutions to provide professional opinions, the relevant expenses
to be borne by the company.
58. Each specialized committee shall be accountable to the board
of directors. All proposals by specialized committees shall be
submitted to the board of directors for review and approval.
Chapter 4. The Supervisors and the Supervisory Board
(1) Duties and Responsibilities of the Supervisory Board
59. The supervisory board of a listed company shall be accountable
to all shareholders. The supervisory board shall supervise the
corporate finance, the legitimacy of directors, managers and other
senior management personnel''s performance of duties, and shall
protect the company''s and the shareholders'' legal rights and
interests.
60. Supervisors shall have the right to learn about the operating
status of the listed company and shall have the corresponding
obligation of confidentiality. The supervisory board may
independently hire intermediary institutions to provide professional
opinions.
61. A listed company shall adopt measures to ensure supervisors''
right to learn about company''s matters and shall provide necessary
assistance to supervisors for their normal performance of duties. No
one shall interfere with or obstruct supervisors'' work. A
supervisor''s reasonable expenses necessary to perform their duties
shall be borne by the listed company.
62. The record of the supervisory committee''s supervision as well
as the results of financial or other specific investigations shall
be used as an important basis for performance assessment of
directors, managers and other senior management personnel.
63. The supervisory board may report directly to securities
regulatory authorities and other related authorities as well as
reporting to the board of directors and the shareholders'' meetings
when the supervisory board learns of any violation of laws,
regulations or the company''s articles of association by directors,
managers or other senior management personnel.
(2) The Composition and Steering of the Supervisory Board
64. Supervisors shall have professional knowledge or work
experience in such areas as law and accounting. The members and the
structure of the supervisory board shall ensure its capability to
independently and efficiently conduct its supervision of directors,
managers and other senior management personnel and to supervise and
examine the company''s financial matters.
65. A listed company shall formulate in its articles of
association standardized rules and procedures governing the steering
of the supervisory board. The supervisory board''s meetings shall be
convened in strict compliance with the rules and procedures.
66. The supervisory board shall meet periodically and shall
convene interim meetings in a timely manner when necessary. If for
any reason a supervisory board meeting cannot be convened as
scheduled, an explanation shall be publicly announced.
67. The supervisory board may ask directors, managers and other
senior management personnel, internal auditing personnel and
external auditing personnel to attend the meetings of supervisory
board and to answer the questions that the supervisory board is
concerned with.
68. Minutes shall be drafted for the meetings of the supervisory
board, which shall be signed by the supervisors that attended the
meetings and the person who drafted the minutes. The supervisors
shall have the right to request to record in the minutes explanatory
notes to their statements in the meetings. Minutes of the meetings
of the supervisory board shall be properly maintained and stored as
important records of the company.
Chapter 5. Performance Assessments and Incentive and Disciplinary
Systems
(1) Performance Assessment for Directors, Supervisors and
Management Personnel
69. A listed company shall establish fair and transparent
standards and procedures for the assessment of the performance of
directors, supervisors and management personnel.
70. The evaluation of the directors and management personnel shall
be conducted by the board of directors or by the remuneration and
appraisal committee of the board of directors. The evaluation of the
performance of independent directors and supervisors shall be
conducted through a combination of self-review and peer review.
71. The board of directors shall propose a scheme for the amount
and method of compensation for directors to the shareholders''
meeting for approval. When the board of directors or the
remuneration and appraisal committee reviews the performance of or
discusses the compensation for a certain director, such director
shall withdraw.
72. The board of directors and the supervisory board shall report
to the shareholder meetings the performance of the directors and the
supervisors, the results of the assessment of their work and their
compensation, and shall disclose such information.
(2) Selection of Management Personnel
73. The recruiting of management personnel of a listed company
shall be conducted in strict observation with relevant laws and
regulations and the company''s articles of association. No
institution or individual shall interfere with a listed company''s
normal recruiting procedure for management personnel.
74. The recruiting of management personnel of a listed company
shall, to the extent possible, be carried out in a fair and
transparent manner, through domestic and international markets for
professional management, making full use of intermediary agencies.
75. Employment agreements shall be entered into by a listed
company and its management personnel to clarify each party''s rights
and obligations.
76. The appointment and removal of managers shall be in compliance
with legal procedure and shall be publicly announced.
(3) Incentive and Disciplinary Systems for Management
77. To attract qualified personnel and to maintain the stability
of management, a listed company shall establish rewarding systems
that link the compensation for management personnel to the
company''s performance and to the individual''s work performance.
78. The performance assessment for management personnel shall
become a basis for determining the compensation and other rewarding
arrangements for the person reviewed.
79. The results of the performance assessment shall be approved by
the board of directors, explained at the shareholders'' meetings and
disclosed.
80. A listed company shall specify management personnel''s duties
and responsibilities in its articles of association. If management
personnel violate laws, regulations or the company''s articles of
association and cause damages to the company, the board of directors
of the company shall actively investigate and pursue such
personnel''s legal liabilities.
Chapter 6. Stakeholders
81. A listed company shall respect the legal rights of banks and
other creditors, employees, consumers, suppliers, the community and
other stakeholders.
82. A listed company shall actively cooperate with its
stakeholders and jointly advance the company''s sustained and
healthy development.
83. A company shall provide the necessary means to ensure the
legal rights of stakeholders. Stakeholders shall have opportunities
and channels for redress for infringement of rights.
84. A company shall provide necessary information to banks and
other creditors to enable them to make judgments and decisions about
the company''s operating and financial situation.
85. A company shall encourage employees'' feedback regarding the
company''s operating and financial situations and important
decisions affecting employee''s benefits through direct
communications with the board of directors, the supervisory board
and the management personnel.
86. While maintaining the listed company''s development and
maximizing the benefits of shareholders, the company shall be
concerned with the welfare, environmental protection and public
interests of the community in which it resides, and shall pay
attention to the company''s social responsibilities.
Chapter 7. Information Disclosure and Transparency
(1) Listed Companies'' Ongoing Information Disclosure
87. Information disclosure is an ongoing responsibility of listed
companies. A listed company shall truthfully, accurately, completely
and timely disclose information as required by laws, regulations and
the company''s articles of association.
88. In addition to disclosing mandatory information, a company
shall also voluntarily and timely disclose all other information
that may have a material effect on the decisions of shareholders and
stakeholders, and shall ensure equal access to information for all
shareholders.
89. Disclosed information by a listed company shall be easily
comprehensible. Companies shall ensure economical, convenient and
speedy access to information through various means (such as the
Internet).
90. The secretary of the board of directors shall be in charge of
information disclosure, including formulating rules for information
disclosure, receiving visits, providing consultation, contacting
shareholders and providing publicly disclosed information about the
company to investors. The board of directors and the management
shall actively support the secretary''s work. No institutions or
individuals shall interfere with the secretary''s work.
(2) Disclosure of Information Regarding Corporate Governance
91. A listed company shall disclose information regarding its
corporate governance in accordance with laws, regulations and other
relevant rules, including but not limited to: (1) the members and
structure of the board of directors and the supervisory board; (2)
the performance and evaluation of the board of directors and the
supervisory board; (3) the performance and evaluation of the
independent directors, including their attendance at board of
directors'' meetings, their issuance of independent opinions and
their opinions regarding related party transactions and appointment
and removal of directors and senior management personnel; (4) the
composition and work of the specialized committees of the board of
directors; (5) the actual state of corporate governance of the
company, the gap between the company's corporate governance and the
Code, and the reasons for the gap; and (6) specific plans and
measures to improve corporate governance.
(3) Disclosure of Controlling Shareholder's Interests
92. A company shall timely disclose detailed information about each
shareholder who owns a comparatively large percentage of shares
of the company, the shareholders who actually control the company when
acting in concert and the company's actual controllers in
accordance with relevant regulations.
93. A listed company shall learn about and disclose in a timely
manner, changes in the shareholding of the company and other
important matters that may cause changes in the shareholding of the
company.
94. When controlling shareholders increase or decrease their
shareholding or pledge the company''s shares, or when the actual
control of the company transfers, the company and its controlling
shareholders shall timely and accurately disclose relevant
information to all shareholders.
Chapter 8. Supplementary Article
95. This Code shall come into effect on the date of issuance
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