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Satisfying Interests of International Investors and Stakeholders
Presented by
Davy Lee
Past President (2002)
The Hong Kong Institute of Chartered Secretaries
May 2008
CONCERNS OF CONCERNS OF INVESTORS/STAKEHOLDERSINVESTORS/STAKEHOLDERS
1. RISKS
2. LAW ENFORCEMENT
3. CORPORATE GOVERNANCE
- - 22 --
LAW ENFORCEMENTLAW ENFORCEMENT1. Common Law vs. Code Law
Ball, R., S.P. Kothari and A. Robin 2000. “The Effect of International Institutional Factors on Properties of Accounting Earnings”. Journal of Accounting and Economics 29, pp.1-51
Common Law : Better timeliness and higher conservatism
: Disclosure based
2. Protection of Investors Property Laws: protection of ownership Protection of minority’s right
3. Regulators The Stock Exchange SEC
- - 33 --
CORPORATE GOVERNANCECORPORATE GOVERNANCE
1. Disclosure/Transparency Information aymmetry (Information Risk) Stock price informativeness (SPI)
− Developed markets : higher SPI
: less volatility
- Emerging markets : lower SPI
: more volatility
2. IFRS/Int’l Accounting Standards Kim, J.-B. and H. Shi, 2007. “ International Financial Reporting Standards, Institutional
Infrastructures, and Cost of Equity Capital around the World” SSRN Working Paper (The Hong Kong Polytechnic University)
Kim, J.-B. , J.S.L. Tsui and C.H. Yi, 2007. “The Voluntary Adoption of International Accounting Standards and Loan Contracting arcound the World.” SSRN Working Paper (The Hong Kong Polytechnic University)
- - 44 --
CORPORATE GOVERNANCECORPORATE GOVERNANCE
3. Audit Quality DeAngelo, L., 1981. “Auditor Szie and Auditor Quality”, Journal of Accounting and
Economics 1, pp113-127
Hay, D. and Davis, D., 2004. “The Voluntary Choice of an Auditor of any Level of Quality”, Journal of Practice & Theory 23, 2 (September), pp 37-53
4. Foreign Institutional Investors Gul, F., J.-B. Kim, and A. Qiu, 2007. “Ownership Concentration, Foreign Shareholding,
Audit Quality and Firm-specific Return Variation: Evidence from China.” SSRN Working Paper (The Hong Kong Polytechnic University).
Kim, J.-B and C.H. Yi, 2007. “Does Trading by Foreign Investors Contribute more to Stock Price Informativeness then trading by Domestic Institutional Investors? Evidence from Korea.” SSRN Working Paper (The Hong Kong Polytechnic University)
- - 55 --
Agenda
1. Ownership Structure
2. Share Price Performance
3. Structural Governance
4. Changes in Corporate Governance since IPO
5. Stakeholders’ Focus
6. Indications of China Life Practice
7. What Next
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Ownership structure
China Life Insurance (Group) Company Public Shareholder
China Life Asset Management
Company Limited
Pension Company
P&C Company
72.2%
40% 60%20%
27.8%
60% 55% 40%
25%
- - 88 --
Share price performance
0
50
100
150
200
250
300
350
400
03/12/17 04/05/01 04/09/14 05/01/28 05/06/13 05/10/27 06/03/12 06/09/18
中国人寿 H股指数 恒生指数
China Life vs. market indexes
2628 HK
HSCEI
HSI
Performance since Dec. 17, 2003:
2628 HK : +313.8%
HSCEI : + 66.5%
HSI : + 42.3%
As of Sept. 19, 2006 :
2628 HK closed at HKD 15 per share
China Life’s total capitalization reached HKD 401.5 billion, which made China Life the largest listed life insurer and the 6th largest listed insurer in the world
The global largest IPO in
2003
Announcement of appointing Mr. Yang Chao as President on
June 1, 2005
Announcement of separating roles of
Chairman and President on January 6, 2006
Class actionFirst time to disclose EV
in annual report
Announcement of appointing 3 additional
independent non-executive directors on June 18, 2004
China LifeChina Life HSCEIHSCEI HSIHSI
source : Bloomberg ; data as Sept. 19, 2006
corporate strategy conveyed to the capital market
- - 99 --
Structural governanceComplete corporate governance structure Complete corporate governance structure
Board of Directors
Audit
Committee
Nomination and Remuneration
Committee
Risk Control
Committee
Strategy
Committee
Supervisory Committee
General Meeting
5 INEDs among 10 Directors of the board
All committees chaired by INEDs
The structure an principles of the corporate
governance fully comply with regulations
Harmonization of corporate governance in
line with regulatory requirements in China,
Hong Kong and US
Strong supportive platform
Effective complementary by-laws, rules and
policies regarding corporate governance
3 INEDs 2 INEDs1 Non-executive
Director
1INED
1 Non-executive
Director1 Executive
Director
1 INED
1 Non-executive
Director1 Executive
Director
Attributes
Company Secretary, Board Secretary, Qualified Accountant
Board Secretariat
- - 1010 --
Changes in corporate governance since IPOChanges in corporate governance since IPO
Built up a complete corporate governance structure
Set up a decision making mechanism with board of directors at the core
Established a business development model focusing on profitability
and value growth
Formulated clear strategy, objective and guideline policies
Transparent, timely and consistent disclosure policy
Strengthened risk management, internal control and compliance
Active investor relations
Built up a complete corporate governance structure
Set up a decision making mechanism with board of directors at the core
Established a business development model focusing on profitability
and value growth
Formulated clear strategy, objective and guideline policies
Transparent, timely and consistent disclosure policy
Strengthened risk management, internal control and compliance
Active investor relations
--1111--
Stakeholders’ focusStakeholders’ focus
Fundamentals
performance
Value growth
Fundamentals
performance
Value growth
ShareholdersShareholders
Credibility
Service
Protection
Policyholder
dividend
Credibility
Service
Protection
Policyholder
dividend
PolicyholdersPolicyholders
Compliance
Solvency
Margin
Compliance
Solvency
Margin
RegulatorsRegulators
Corporate
Development
Personal
career
Corporate
Development
Personal
career
EmployeesEmployees
StakeholdersStakeholders
--1212--
Indications of China Life practiceIndications of China Life practice
What good corporate governance matters
Add premium to share price
Establish an effective mechanism of check and balance
Ensure consistent strategy, sustainable growth and clear objectives
Improve transparency, internal control and compliance
Cultivate a corporate governance culture focusing on execution
Retain its corporate personality while acting in line with the
international best practice
What good corporate governance matters
Add premium to share price
Establish an effective mechanism of check and balance
Ensure consistent strategy, sustainable growth and clear objectives
Improve transparency, internal control and compliance
Cultivate a corporate governance culture focusing on execution
Retain its corporate personality while acting in line with the
international best practice
1313
What nextWhat next
Further optimize shareholder structure
domestic listing in A share market
introduce strategic investors
Further clarify role of the board and establish an effective
corporate governance mechanism
Further identify governance boundaries
Continue to cultivate a corporate governance culture
Further optimize shareholder structure
domestic listing in A share market
introduce strategic investors
Further clarify role of the board and establish an effective
corporate governance mechanism
Further identify governance boundaries
Continue to cultivate a corporate governance culture
1414
Recent Development of China LifeRecent Development of China Life
1. Concentrate on Investors Relationship− Regular visits with international institutional investors− Responsive in answering their questions− Roadshows to major financial markets
2. Foreign Institutional investors:
Long Position in H-Shares (%)
Deusche Bank 11.06
HSBC 5.32
JP Morgan 7.50
KBC Group 5.72
UBS 6.24
- - 1616 --
Other Major Listed Companies in PRCOther Major Listed Companies in PRC
Foreign Investors Shareholding at IPO
Bank of Communication Co. Ltd. HSBC 19.90%
China Construction Bank Corp. Bank of America 8.739%
China CITIC Bank Corp. Ltd. Banco Bilbao Vizcaya 7% (approx.)
Argentaria S.A.
- - 1717 --