What Do the Best Boards of Directors in China Do Differently?

In a first-of-its-kind ranking, Aon and FORTUNE China selected outstanding boards of directors from China’s 500 largest listed companies using a comprehensive methodology based on data sourced from annual reports, websites of exchanges and companies, and company announcements.

What Do the Best Boards of Directors in China Do Differently?

31 Aug 2018 by  Peter Zhang

In the FORTUNE Global 500 today, large Chinese companies have grown from having only three representatives to making up nearly 25% of the list. Alongside this growth, they have become more sophisticated, enhanced their capabilities, and achieved greater levels of globalisation.
Therefore, the ability of governing bodies to keep pace with business, economic, and technological advances has become a fundamental concern in the development of large companies. As a result, Aon and FORTUNE China have jointly launched a 2018 ranking of “China’s Top 50 Boards of Directors"—selected from China’s 500 largest listed companies, using a comprehensive methodology based on data sourced from annual reports, websites of exchanges and companies, and company announcements.
The selection of China’s Top 50 Boards of Directors is an exploration of Chinese board governance patterns. It proposes how Board of Directors can enhance their value proposition of corporate governance from good to excellent, as well as deal with contradictions and challenges. Through these rankings, businesses can gain an in-depth understanding of effective board governance models and the value that these bring.

3 Qualities of Top 50 Boards of Directors in China

1. Composition of independent directors

Having a Board with a balance of experienced professionals and independent directors promotes a company’s healthy development. Over 50% of independent directors in Fortune China 500 companies have backgrounds in either academia or government, with the number of independent directors with extensive experience in business management and industry still lagging.
This is a significant contrast to the US where, according to Dow Jones's 2017 Corporate Governance Survey, over 80% of independent directors have relevant industry experience. For example, Facebook has six independent directors on its Board who are experienced industry experts, with a well-respected professional track record and the capacity to manage a multinational company.

2. Gender diversity

Female directors can offer alternate viewpoints, facilitating the making of more prudent and representative decisions. At the same time, women's interpersonal skills can be useful in easing conflicts and contradictions, smoothening the way for a Board to make effective progress.
Among FORTUNE China 500 companies, 64% of companies have female directors in 2018—including Dali Foods and Dahua, which have women making up 38% of their Boards (three out of eight directors). This is the highest ratio among the Top 50.

3. Commitment to efficient governance

A big challenge in corporate governance across the world has always been to integrate directors more fully into the work of the Board. In the US, proxy agencies usually have clear provisions for a director's commitment, in order to guide the entrusted agent on how to vote. For example, directors who are absent 75% of the time are disqualified from being nominated again. Different types of directors (executive, non-executive and independent) have a different minimum number of Boards they can concurrently serve on. Directors are also expected to invest at least one day per month dealing with matters related to the Board.
According to statistics from FORTUNE China 500 companies, over 70% of Boards meet 4 to 12 times a year, with the most common meeting frequency being seven times a year. The director participation rate among FORTUNE China 500 corporations is about 98%.

The duty of the Board is not only to control and supervise, but also to create value for shareholders and enterprises. There is no standard formula for the composition of a Board of directors, and with the proliferation of cross-industry collaborations, innovations and integrations today, factors such as professionalism, experience, influence, and global vision are basic requirements for directors. Young people with international backgrounds can also bring forward-looking vision and innovative perspective to boards, which can allow the boards to deal with current issues with the future in mind.
As an important asset to company, a healthy and effective Board of Directors can drive the overall development strategy and win trust from investors and clients. China’s Top 50 Board of Directors will lead Chinese companies to inherit, to transform, and to thrive on the path of globalisation.
This blog post is an excerpt of the full report, 2018 Top 50 Boards of Directors-China.

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Peter Zhang

Peter Zhang, CEO of Aon Consulting China, has worked in the HR management consulting industry for over 20 years. He specialises in leadership advisory services, organisational effectiveness, HR function transformation and total rewards. Peter is a thought leader in China’s HR market and his views have been widely cited globally. Peter’s client portfolio is diverse and balanced, covering the MNC, POE and SOE sectors. Peter holds a Kellogg Executive MBA degree from Northwestern University.

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Peter Zhang
Peter Zhang
Shanghai, China