After the equity division reform, to encourage and further corporate governance of listed companies and promote their overall quality, China Securities Index Co., Ltd. (CSI), supported by the Shanghai Stock Exchange (SSE), will formally introduce the SSE Corporate Governance Index before the end of this year.
As early as in 1999, the SSE began delivering survey questionnaires on corporate governance to listed companies, with an aim to boost listed companies' governance. Afterward, listed companies including Sinochem International Corporation (Sinochem) attempted the rating of corporate governance, and Sinochem announced the rating result of corporate governance from Standard & Poor's. China's companies were mainly measured by foreign standards at that time. However, as the market develops, there is an increasing need for China's own standard to measure the governance of the companies. In addition, China's fund management companies face the problem of similar products released when they are rapidly growing strong. It's necessary for them to introduce products in different styles. After the equity division reform, corporate governance is increasingly important and becomes the focus concerned by the investors. Both domestic and foreign experiences show that investors are willing to pay a premium for good corporate governance. Therefore, the timely introduction of corporate governance index will provide target for funds' release of new products, which will thus be popular with institutional investors.
The introduction of corporate governance index will echo with the special corporate governance of the China Securities Regulatory Commission (CSRC) to further deepen the governance supervision of listed companies. To strengthen the internal regulatory mechanism of listed companies, the CSRC initiated the special governance of listed companies this year. The special governance consists of three stages: self-examination (before August), rectification (before October) and check. The release of corporate governance index helps to further improve the governance level of listed companies after their special governance activities.
According to the CSI's scheme of corporate governance index, the formulation of the index needs to undergo two stages. The first is the formation of corporate governance sector through appraisal while the next is the formulation of the index.
The basic principles of corporate governance sector are: (1) Voluntary application. Listed companies can apply for joining in corporate governance sector voluntarily; (2) Fairness and transparency. Self-appraisal and public comment will be adopted in combination with expert authentication; (3) Open sector. There will be no limitation to the number of companies entering corporate governance sector. Instead, they are encouraged to join in the sector.
The SSE Corporate Governance Index will be published and managed by the CSI. The SCI will establish an Expert Consultative Committee for Corporate Governance Sector Appraisal. The CSI and the SSE will establish an internal work group for the appraisal. The work group will take charge of specific work of the appraisal.
The work process mainly includes five procedures, namely, application, publication and public opinion solicitation, primary selection, comment by the Expert Consultative Committee and index formulation.
Annual reappraisal will be conducted for the corporate governance sector. The CSI will adjust the SSE Corporate Governance Index at the beginning of July according to the reappraisal results. During the operation of the index, companies that fall short of the application conditions of corporate governance sector will be immediately weeded out.
As for the schedule, the CSI plans to announce the appraisal measures for corporate governance sector after the National Day. Meanwhile, listed companies can begin their voluntary application. Public comment will be carried out from late October to early November, primary selection in late November, and comment by the Expert Consultative Committee at the end of November. It is predicted that the index will be introduced in December and formally released and operated on January 1, 2008.
