Design corporate governance structures carefully
October 13, 2010 | BY
clpstaff &clp articles &Protect shareholders' interests
Chinese enterprises should continue to improve their corporate governance structures to guard shareholders' interests.
The importance of adapting corporate governance structures to international best practice standards bubbles to the surface once again in light of the most recent twist in the Gome Electrical Appliances (Gome) power struggle between jailed founder and single largest shareholder Huang Guangyu and current Gome chairman Chen Xiao.
At a special general meeting on September 28, shareholders blocked the company from issuing new shares and revoked the company's “general mandate” (GM), which allows the board to bypass existing shareholders and sell off 20% of issued share capital at a discount. They also voted against Huang's motion to unseat Chen and another executive director, Sun Yiding.
Beijing-based Jade & Fountain PRC Lawyers partner, Lawrence Linjun Guo says: “Gome's recent board incident would help to tell other Chinese enterprises that the corporate governance structure of a company, particularly a large or listed company, is an important matter that should be carefully designed to protect the interest of controlling shareholders as well as other shareholders.”
Even though Gome's shareholders voted against the GM already at their annual general meeting earlier in May, Huang called the special meeting to vote on five motions, including on the GM once again and on his proposal to replace Chen and Sun with his sister and one of his lawyers. The GM matter was of particular importance to Huang because his majority shareholding percentage was at risk of being diluted.
Gome is incorporated in Bermuda and according to Bermuda corporations law, a special meeting can be called by one or more shareholders that hold one-tenth of the outstanding shares of the company.
“Gome is a good example showing that the fight for control of the board of directors of a private company that is incorporated and listed in a foreign jurisdiction but controlled by a Chinese family may still happen in the board in a civilized way,” says Guo.
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