Corporate governance and its practices in Shanghai Stock Exchange

1. Corporate governance and its practices in Shanghai Stock Exchange Dr. HUANG Jianshan Shanghai Stock Exchange Research Center June 13, 2011

2. Corporate governance Framework in China • Independent directors in China • Corporate governance practices in Shanghai Stock Exchange • Future Development

3. 1. Corporate Governance framework in China • Legal framework of CG for listed companies: • Basic laws: Company Law, Securities Law, and so on. • Administrative regulations: Circular of the State Council on its Approval of the CSRC’s Opinion on Improving the Quality of Listed Companies, and so on. • Regulatory provisions: CG Code, and so on. • Self-disciplinary rules: Listing Rules, and so on.

4. 1. Corporate Governance framework in China • Institutional framework for CG of listed companies • CSRC • Government agencies related to CG • Stock exchanges and security registration and settlement company

5. 1. Corporate Governance framework in China • Main contents of corporate governance system in China

6. 1. Corporate Governance framework in China Shareholders General Meeting Board of Directors Board of Supervisors Independent Directors Special Committees Management

7. 2. Independent directors One of important aspects: independent directors • Independent Directors： • Engage external auditors and consultancies • least 1/3 of the board of directors should be independent directors • least one professional accountant • Major related party transactions approved by at least half of all independent directors • Expenses incurred carried by listed companies

8. 2. Independent directors • Scale distribution of Independent directors No. of listed companies No. of independent directors per company Data from SSE survey

9. 2. Independent directors • Age distribution of independent directors Data from SSE survey

10. 2. Independent directors • Education background distribution of independent directors Data from SSE survey

11. 2. Independent directors • Allowance distribution of listed companies

12. 2. Independent directors • Origin of independent directors

13. 3. Corporate Governance Practices in SSE • Shanghai Stock Exchange: Blue-chip Market （1）Corporate governance research and forum （2）Amend and perfect corporate governance rules （3）Corporate governance ETF and corporate social responsibility ETF （4）International cooperation and openness

14. 3. Corporate Governance Practices in SSE （1）Corporate governance research and forum • Annual Corporate Governance Report • Starting from 2003, SSE has issued Corporate Governance Report year after year. • Annual Corporate Governance Forum • Year after year, SSE has hold Corporate Governance Forum on December 18, a day before SSE birthday since 2002. • Corporate Governance Awards

15. 3. Corporate Governance Practices in SSE （2）Amend and perfect corporate governance rules • SSE actively participates and promotes amendment of Company Law, Securities Law and etc. • SSE continuously perfects related corporate governance rules, listing rules and so on, cooperating with legislation, administrative and academic institutions. • Establish delisting system of listed company.

16. 3. Corporate Governance Practices in SSE （3）Corporate governance ETF and corporate social responsibility ETF • Corporate Governance Sector • Stocks in SSE Corporate Governance Sector are selected by SSE and China Securities Index Co., Ltd. • Selection procedure: voluntary application, public appraisal, consultants’ appraisal, preliminary selection and the advisory committee’s discussion. • 242 listed companies in CG Sector in 2010. • Corporate Governance Index • Corporate Governance Index • Exchange Traded Fund based on CG index

17. 3. Corporate Governance Practices in SSE （3）Corporate governance ETF and corporate social responsibility ETF • Corporate Social Responsibility Index • Shares in SSE Corporate Governance Sector • Ranking by social contribution value per share and selecting the top 100 stocks • CSR ETF • Exchange Traded Fund based on CSR index

18. 3. Corporate Governance Practices in SSE （4）International cooperation and openness • Cooperation between SSE and IFC • IFC offered professional comments on the Code of Conduct for Directors of Listed Companies in SSE. • SSE collaborated with IFC to pioneer sustainability disclosure requirements for listed companies. • IFC made an excellent speech at “the 9th China Corporate Governance Forum”, last year in Shanghai. • Cooperation between SSE and OECD • OECD-China policy dialogue on corporate governance began in 2004. • OECD-China corporate governance joint assessment programme was formally launched in 2009.

19. 4. Future development • Future development of corporate governance in SSE • Establishing and amending relevant regulations and rules • Standardization of Internal Control of listed company • Support development of diversified investment product based on CG Index and CSR Index. • Comprehensive International Cooperation

20. Thanks