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THE CHALLENGE FOR CHINA


around the world have adopted better approaches to corporate governance, including greater financial transparency and adequate information disclosure. With an increasing number of Chinese firms listed


on US and other overseas exchanges, enthusiasm for investment in China is at an all-time high. However, further development has stagnated due to a loss of foreign investor confidence that stems largely from concerns over Chinese firms’ poor corporate governance practices. Many Chinese businesses accept that poor standards of corporate governance stand as a major barrier for future development, but often do not know where reform needs to start. According to Jason Goldberg of Dechert LLP,


corporate governance is composed of three key elements: ƒ Oversight. While a distinction is often drawn between oversight and management, Goldberg says these are two ends of the spectrum rather than two completely different things; “the balance between what the board does and what the management does is one of the key elements of corporate governance”. ƒ Disclosure. A public company needs to make disclosures to investors and to the public. ƒ Compliance. “In addition to having to accurately


report the business of the company, you also have to make sure your company is in compliance with the law.” Unfortunately, most Chinese firms have a long way


to go. Typical corporate governance practices include concentrated ownership structures, inadequate financial disclosure and management-friendly boards. Such practices, often used to gain unethical competitive advantages, have fostered firms’ incentives to misreport profits, undermining investor confidence and lowering the value of Chinese stocks. In turn, allegations of miscalculations or misreporting have often been met with denial by Chinese firms, rather than cooperation. Goldberg says a proactive and cooperative approach


can increase a firm’s valuation. “To take control of the issue, sometimes you have to paradoxically surrender control. The problem isn’t going to go away just by protesting that it isn’t true. [You] want to make sure that whatever adjustment evaluation is done is an accurate reflection of what the value really is, and not just a risk aversion on the part of the investors so that they no longer trust what the company says.” This level of transparency and engagement is best


achieved via qualified information intermediaries such as independent auditing committees, which enhance credibility with investors.


 FAMILY OFFICE: ASIA TOMORROW 25


oversight disclosure


compliance THE KEY ELEMENTS COMPOSING CORPORATE GOVERNANCE


FOCUS ON AISA-PACIFIC


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