Why Corporate Governance is So Important to China

A great deal of my business involves assessing the Corporate Governance of China Sector companies.  A sophisticated investor, be it a hedge fund, investment banker, or mutual fund, can look at the numbers and the outlook and create a financial model that indicates whether the investment is worthy of consideration.  Getting a sense of the quality of the Corporate Governance is less straightforward.  Ultimately, an investor will have to make a decision.  The key is to do as much due dlilgence as possible to make sure that the senior management and BOD understands their obligations.

With the meltdown in the China Sector stocks and the increased scrutiny by regulators, of late the companies that remain listed have been paying much more attention to governance.  The norm of the past, where companies created a framework that would work - at least for show - is slowly changing to reflect the realities of the obligations of publicly listed companies.  I've seen both terrible and terrific examples of governance, but am happy to report that generally, things are improving.

While the meltdown and increased scrutiny are key factors in the move to greater standards of Corporate Governance, I believe that another very important factor is that the concepts are now being demanded within China itself.  The Forbes article  Why Corporate Governance is So Important to China is a worthwhile read.