Shenzhen Stock Exchange, Conduct of Directors of Companies Listed on the Small and Medium-sized Enterprise Board Guidelines

Issued: February 28 2005
Effective: as of date of issue
Interpreting authority: Shenzhen Stock Exchange (SZSE)
Applicability: These Guidelines apply to directors of companies listed on the Small and Medium-Sized Enterprises Board of the SZSE (hereafter, Directors).

Main contents: The Guidelines specify the norms for conduct of Directors, special norms for conduct of the chairman of the board of Directors, and special norms for conduct of independent Directors, as well as related supervision and administration. The norms for conduct of Directors cover such areas as appointment, deliberation of significant matters, information disclosure, report of significant events, and leaving office (Part Two). Directors shall guarantee for the truthfulness, accuracy and completeness of the information disclosed by their companies, and confirm that there are no false or misleading statements or material omissions (Article 16). They are required to immediately send a report to the sponsor's representative, the SZSE and the securities regulatory authority if the board is not reacting properly in circumstances such as when Directors report to the board of directors significant problems in the business activities of the company or acts of other Directors or senior management personnel that are detrimental to the company's interest, but the board of Directors fail to take effective measures (Article 21). After a Director has left office, her obligation to keep commercial secrets of the company confidential shall remain effective before the said commercial secrets become public information (Article 23). If a company is subjected to administrative penalties by the China Securities Regulatory Commission or is denounced by the SZSE, and the case is serious, the chairman of the board shall resign (Article 29). Article 31 specifies the special powers and functions of independent Directors. It stipulates that a major affiliated transaction (referring to proposed affiliated transactions at an amount of more than Rmb3 million or more than 5% of the latest audited net assets of the listed company) shall be approved by more than half of the independent Directors before it is submitted to the board for deliberation (Article 31). Independent Directors are required to express independent opinions, among others, on nomination, appointment and removal of Directors, and appointment and removal of senior management personnel. Such independent opinions are also required if the company's shareholders, actual controlling party or their affiliated enterprises have made or are having borrowings or other fund transactions with the company that amount to more than Rmb3 million or more than 5% of the company's latest audited net assets, and on whether or not the company has taken effective measures to recoup the amount.
Related legislation: PRC Company Law (Amended), Oct 27 2005, CLP 2005 No.10 p21; PRC Securities Law (Amended), Oct 27 2005, CLP 2006 No.1 p31; Listed Company Governance Guidelines, Jan 7 2002, CLP 2002 No.1 p6 and Shenzhen Stock Exchange, Stock Listing Rules