This page contains a Flash digital edition of a book.
THE CHALLENGE FOR CHINA


Under investigation One particular target of investigators in the US is related party transactions. Related parties are defined as executive officers, directors or nominees for directors, security holders beneficially owning more than five per cent of a class of the company’s voting securities, and their immediate family members. While related party transactions are legal, they have the potential to create conflicts of interest such as minority shareholder expropriation, financial fraud and transferring out of the company’s cash flow in the related parties’ favor. Many


Chinese companies are under attack from short-sellers and others because of related party transactions. If an overseas company is investigated, the advice is


“To take control of the issue, sometimes you have to paradoxically surrender control”


to cooperate fully and openly. Robert Pietrzak of Sidley Austin LLP says the instinct “to cover things up, to create documents, to give inaccurate information ... to try to make it look like they haven’t done anything wrong ... doesn’t work”. Instead, “the only thing that will satisfy the accountants, the SEC and ultimately the court is having a thorough and detailed view of what’s going on – and that needs to be documented, and documented carefully. You will need to bring in outside experts on the subject, and cooperate with them thoroughly. [You also] want to get as much possible independence from reviewers.”


Internal control With dozens of US class actions in progress against Chinese companies, the best proactive approach – which many companies are now taking – is to institute vigorous internal controls. Internal control is a process designed to provide reasonable assurance regarding the achievement of corporate objectives. The process is instituted by the company’s board or management, but everyone in the organization has responsibility for internal control, and for communicating upward problems in operations, non-compliance with the code of conduct or other policy violations or illegal actions. Ideally, these controls should be designed and implemented by independent experts.


Attracting cautious investors Despite being often burned, investors in developed countries retain a strong interest in Chinese companies. But their approach is increasingly cautious, making it even more important for Chinese companies to foster high levels of transparency and a proactive investor relations communications strategy. Investors have now started to pay more attention to new areas, such as strong independent board members, reputable third parties, and the depth and credentials of an audit team. These measures will also contribute to maximizing the company’s valuation. At present, Chinese firms tend to be subject to “risk pricing,” in which foreign investors discount share prices because they cannot properly evaluate the company.


Gift or bribe? Translating China’s gift and hospitality culture into overseas markets can create perceptions of corruption. Essentially, developed countries’ laws prohibit giving or offering anything of value to any foreign official in order to win or retain business. Excessive monetary gifts, favors or licentious services can be readily construed as a bribe – and giving or receiving a bribe is a criminal act that these days is vigorously prosecuted.


The paper is available at: www.cebexgroup.com/images/ corporate%20governance%20white%20paper-en.pdf


26 FAMILY OFFICE: ASIA TOMORROW


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100  |  Page 101  |  Page 102  |  Page 103  |  Page 104  |  Page 105  |  Page 106  |  Page 107  |  Page 108  |  Page 109  |  Page 110  |  Page 111  |  Page 112  |  Page 113  |  Page 114  |  Page 115  |  Page 116  |  Page 117  |  Page 118  |  Page 119  |  Page 120  |  Page 121  |  Page 122  |  Page 123  |  Page 124  |  Page 125  |  Page 126  |  Page 127  |  Page 128  |  Page 129  |  Page 130  |  Page 131  |  Page 132  |  Page 133  |  Page 134  |  Page 135  |  Page 136  |  Page 137  |  Page 138  |  Page 139  |  Page 140  |  Page 141  |  Page 142  |  Page 143  |  Page 144  |  Page 145  |  Page 146  |  Page 147  |  Page 148