A Comparision of Corporate Governance in China and India
A Comparison of Corporate Governance in China and India With the U.S.
Dr. Steven Mintz, California Polytechnic State University, San Luis Obispo, CA Dr. Sudha Krishnan, California State University, Long Beach, CA ABSTRACT We examine corporate governance systems in China and India and compare them to provisions of the Sarbanes-Oxley Act and NYSE listing requirements in the U.S. In China, the influence of the State as the primary investor in state-owned enterprises restricts the degree to which the board of directors can be independent decisionmakers and the board has overlapping responsibilities with the board of supervisors. China needs to convince foreign investors that state-owned enterprises and state interference will not impede the efforts of multinationals to operate in that country. In India, the influence of individual shareholders is muted because of the importance of family-owned businesses and government influence in key sectors. Unlike the U.S., in China and India the nonmanagement directors are not required to meet separately with management and the audit committee does not have to meet separately with management or the external auditors. The requirement in China and India to “comply or explain” deviations from corporate governance provisions is stronger than in the U.S. which only has a compliance certification requirement. However, in both China and India the implementation and enforcement of corporate governance provisions has been restrained due to overlapping responsibilities of regulatory authorities and a lack of enforcement. INTRODUCTION Corporate governance plays an essential role in promoting confidence in international markets. The globalization of business and need for access to international markets create a demand for strong corporate governance systems. According to a 2002 McKinsey investor opinion survey, investors who were open to paying premiums for shares were, on average, willing to pay a 25 percent premium for well-governed
Dr. Steven Mintz, California Polytechnic State University, San Luis Obispo, CA Dr. Sudha Krishnan, California State University, Long Beach, CA ABSTRACT We examine corporate governance systems in China and India and compare them to provisions of the Sarbanes-Oxley Act and NYSE listing requirements in the U.S. In China, the influence of the State as the primary investor in state-owned enterprises restricts the degree to which the board of directors can be independent decisionmakers and the board has overlapping responsibilities with the board of supervisors. China needs to convince foreign investors that state-owned enterprises and state interference will not impede the efforts of multinationals to operate in that country. In India, the influence of individual shareholders is muted because of the importance of family-owned businesses and government influence in key sectors. Unlike the U.S., in China and India the nonmanagement directors are not required to meet separately with management and the audit committee does not have to meet separately with management or the external auditors. The requirement in China and India to “comply or explain” deviations from corporate governance provisions is stronger than in the U.S. which only has a compliance certification requirement. However, in both China and India the implementation and enforcement of corporate governance provisions has been restrained due to overlapping responsibilities of regulatory authorities and a lack of enforcement. INTRODUCTION Corporate governance plays an essential role in promoting confidence in international markets. The globalization of business and need for access to international markets create a demand for strong corporate governance systems. According to a 2002 McKinsey investor opinion survey, investors who were open to paying premiums for shares were, on average, willing to pay a 25 percent premium for well-governed
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