What Role Should Be Played By The Director Of China'S Independent Capital Institute?

Intern Xue Bangyi reports from Beijing

In the past 30 years, there has been a lot of impressive history of China's capital market. However, the most unforgettable moment in the history of equity reform is to avoid the historical event of equity reform.

As a reform measure which is evaluated by the market as having no less significance than "establishing China's capital market", the reform of non tradable shares promotes A-share to enter the era of full circulation, which is also the main driving force of the largest market since the establishment of the A-share market.

Behind this far-reaching reform, there is a person who has been promoting it. This person is Hua Sheng, a senior professor of Southeast University and President of the national development and Policy Research Institute. In 1986, he was named the first batch of "national experts with outstanding contributions".

Watson is one of the main proponents and promoters of the three important reforms that affect the process of China's economic reform, namely, the double track pricing system, the state-owned assets system, and the reform of non tradable shares.

At the same time, Watson is also an important witness and defender of China's modern corporate governance model. As a former independent director of Vanke A shares, Watson withstood the pressure of all parties to support the company's management in the "Baowan dispute".

At present, China's capital market is undergoing a new round of reform and opening up. The reform of the multi-level capital market of the science and technology innovation board, the growth enterprise market and the new third board has begun. With the steady implementation of the registration system and the continuous increase of opening-up, what development opportunities will China's capital market have and how can Chinese enterprises complete transformation in this reform?

"It has been 15 years since the non tradable share structure reform was launched in 2005. Now the scale, thickness and internationalization of the securities market are totally different from those at that time. Today, if we further comprehensively promote the market-oriented reform of the securities market and make it more standardized and market-oriented, the prospect is indeed unpredictable." Watson said in an exclusive interview with the 21st century economic report.

The significance of the reform of non tradable shares cannot be overestimated

In order to solve the inherent defects of China's state-owned enterprises in the 21st century, what was the purpose of the reform?

Watson: objectively speaking, there were both purposes at that time. From the national point of view, on one hand, before China's accession to the WTO in 2001, state-owned enterprises and the state's finance were very difficult. Therefore, it was an important driving force to recover some funds through the capital market. However, it was also because some people familiar with the international market in our government also called for equal rights for the same kind of shares There is nothing wrong with the reduction of shares.

The 21st century: at the beginning, the reduction of state-owned shares was not smoothly promoted. What are the reasons for the setbacks?

Hua Sheng: the reduction of state-owned shares was not fully discussed before the reduction. Before 2001, it was basically a department operation, and the Ministry of finance played a leading role. Therefore, the Ministry of finance came out and said that the reduction of state-owned shares is good for the capital market and good for the country. But before it was introduced, the market was not well understood and there was no discussion in the academic circles. Basically, it was the discussion and operation within the government. Therefore, different opinions have been aroused from various aspects after the introduction.

As soon as I came out, I wrote an article entitled "signals of a long bear market: Comments on the reduction of state-owned shares". I felt that there would be big problems. The root of the problem is that when China established the securities market, China was still conservative in thinking that state-owned shares were state rights and could not be transferred. After the transfer, the state-owned control status would be lost. Therefore, it was artificially set that the original shares were state-owned shares and corporate shares, which could not be circulated in the market. As a result, a split market was created. Only stocks purchased in the secondary market could be circulated This leads to the unique phenomenon of non tradable shares in China.

This phenomenon has been maintained until 2001, and we have been used to this situation. At that time, when the state-owned shares need to be transferred, they will be transferred according to the value of net assets, that is, if the net assets on the book are not less than this number, the financial department will approve the transfer. Of course, when you transfer 10.5 yuan in the same stock market, how do you think that the transfer of 10.5 yuan in the same stock market is not the same?

The initial plan to reduce the state-owned shares is to say that they do not recognize the difference between the two. The stock of 2.5 yuan can also be sold for 10 yuan. At that time, about 1 / 3 of the stocks were in circulation, and 2 / 3 of them were non tradable stocks. Originally, this 1 / 3 can be sold for 10 yuan, and now the other 2 / 3 are also sold for 10 yuan in the market. The supply is greatly increased, and the original rights are void, and the stock price is bound to fall.

Why do I disagree? In 1996, I published an article in "economic research" on how to deal with the issue of non tradable shares in China, that is to say, these two kinds of shares are not the same kind of shares and can not be simply circulated. If circulation is to be carried out, it should be carried out from the perspective of global standardization reform, that is to say, it should be redeemed, that is to say, it must pay a certain price. Therefore, after the initial state council's state-owned share reduction plan was introduced, my impression is that the market has not responded to it in the first month, and it is relatively stable. But after a month, the market gradually realizes and realizes the impact of the reduction of state-owned shares, so the market begins to decline.

21st century: how does your proposal affect the promotion of non tradable shares reform?

Watson: it should be said that there are a lot of people who promote the reform. Because the interests of the stock market have been damaged after the fall of the stock market, many people have come out against it and think it is wrong to reduce the state-owned shares. But there are also many supporters who believe that this is the case all over the world, and that large shareholders can reduce their holdings and share the same rights. So the initial opposition grew as the market fell. However, the decision of the State Council has been issued, and from the perspective of regulating the market internationally, it is also true. Therefore, different opinions have been held for a long time.

In the meantime, the stock market continued to go down, and the voices of opposition grew louder and louder, which attracted the attention of high-level officials and they were also listening to opinions. Because I wrote the most articles and had the most distinctive views in this field, I attracted the attention of the leaders. They held various internal meetings and asked me to go there. Seven or eight times of such internal seminars were held, and different opinions were exchanged there.

Finally, I think that the market is better than people. On the one hand, it is reasonable. On the other hand, the whole stock market is getting worse and worse. Finally, the senior management thought that since there was a problem, they suspended it and announced that it would stop.

What are the flaws in the pilot program in the early 21st century? What do you think is the right plan?

Watson: at that time, the core difference was whether the state-owned shares, corporate shares and tradable shares were the same shares with the same rights, and whether they were the same kind of shares.

My point of view is: in a sense, it is the same share with the same right, for example, each share has one vote, and the dividend is also distributed according to each share. But from another point of view, the state-owned shares and corporate shares have no circulation right, while the circulating shares have the circulation right, and the very important function of securities is circulation. The huge difference in circulation rights results in the huge difference in their prices. Therefore, it is impossible to say that they are totally the same shares and the same rights. In view of this situation, the majority of investors will be forced to reduce their holdings.

What should I do? The reform can restore circulation, but it has to pay a price, that is to say, to pay consideration and to make certain profits to the circulating shareholders, such as stock dividends. Under this premise, the circulation shares and the non circulation shares should reach a proper agreement, so as to complete the reform which we later called "share splitting", so that our securities market can be in line with the international market and can be exactly the same, so as to attract foreign investment.

21st century: how do you evaluate the reform as a whole?

I don't think it's too important to evaluate the foundation of the reform. China's stock market has been established, but most of the shares are not in circulation, and only a small number of shares are in circulation. Therefore, it is impossible for this market to be in line with the international market, and foreign capital can not come in. First, the circulation plate is too small, because most of the stocks are not in circulation and are too speculative. Second, the definition of the two kinds of stocks is not clear. This step laid the foundation for the development of stock market. Before the split share structure reform, the scale of the securities market was very limited, and various investment funds and public funds could not enter, let alone how difficult the development of private funds was.

Looking back on the "battle of Baowan": a "sole director" who makes major shareholders regret their appointment

21st century: nine years ago, you said that because Vanke reflected the direction of the reform of state-owned enterprises, Vanke made an exception as a sole director without salary. What is the opportunity for you to be the sole director of Vanke and why not get paid?

Mr. Watson: before I was an independent director of Vanke, I had never been a sole director of a listed company. I have only been a member of this listed company. In the past, it was improper because there were many rights and wrongs of listed companies, and I deeply participated in the reform of non tradable shares and expressed many opinions. I don't want to be involved in any interest struggle. I refused to be the sole director of listed companies, including some large-scale companies. I said that I was studying capital market issues, so it was not appropriate to be a stakeholder.

However, it was quite accidental when Vanke was the sole director. Zhang Yundong, the director of Shenzhen Securities Regulatory Bureau at that time, knew each other because of the reform in the past. One day, I suddenly called and said that Vanke was looking for the next independent director and asked me to consider it. I refused when I came up. I said I never served as a sole director. I'm sorry.

In fact, it is very interesting for the company to be led by a number of excellent shareholders, even though it is very interesting for them to be led by the operators of China Resources. At the end, he said, "these people cherish their feathers, which means you can rest assured that you won't get into trouble.".

His last words moved me, because I am also one of those people who care more about their own reputation. So I took a close look at the situation of Vanke. After reading it, I found that it was Vanke that really made my decision. At that time, I felt that the corporate governance structure of Vanke represented the development direction of China's enterprises in the future.

What is the direction? In the aspect of state-owned enterprises, government officials are the leaders of state-owned enterprises. The relationship between state-owned enterprises and the government is close. It is difficult for them to separate government from enterprises. Moreover, officials do not necessarily possess the qualities of entrepreneurs. Therefore, in order to develop and become the main body of market economy in the future, state-owned enterprises need professional managers instead of relying on officials.

From the perspective of private enterprises, the development of the first generation of private enterprises in the early stage is basically an enterprise owned by the owners. Whoever is the boss will be in charge of the enterprise. However, when the scale of the second and third generation is large, they may not have the ability. Some children do not have this interest, while others may not be able to take charge of a large enterprise. Therefore, there may be no one in ten multinational companies in the world, such as Microsoft and apple. Modern large enterprises, especially those in the capital market, are dominated by operators, so that people with real entrepreneurial talents can lead the enterprises.

It should be the same in China in the future. Among the many listed companies in China, there are few enterprises with a good scale, and Vanke is a prominent representative among them. So in this sense, I agree to be.

21st century: Why did you publicly not support the opinions of major shareholders during the "Baowan dispute"? Why did the other independent directors not speak up about the incident? Do the major shareholders regret hiring you, who is different from other independent directors?

Watson: I guess I'll regret it later.

At that time, people didn't know me very well. They just heard about fame. They didn't expect me to play a big role as a sole director. I didn't expect to encounter such a big thing. Now objectively speaking, in the structure of China's listed companies, the role of independent directors is very limited. There may be tens of thousands of independent directors in thousands of listed companies. We haven't heard of any independent directors for a year or two or even ten or eight years, but this situation is not normal.

It is because to establish an independent director is to set an important force in the company's governance structure. Of course, my approach is to break another example, that is, "as an independent director, how can he stand up to be different from the opinions of the major shareholders, and also resort to the market for internal differences". The reason why I do this is because I feel that Vanke's business model, which is dominated by operators, represents the direction of China's enterprise development in the future. It is not easy for us to have these two companies, but we have to strangle them and become an enterprise dominated by major shareholders and determined by the boss.

At that time, many people thought that I must have a very good relationship with Wang Shi. In fact, I had no relationship with Wang Shizhen. After that incident, it still had nothing to do with him, and now I have never contacted him.

So I come back to sum up, maybe it's just that I am still a person with personality and feelings. When I encounter something, I will really help you when I see injustice. Of course, if it's not just involved with me, I don't understand the situation. I'm not a person who likes to join the party. In addition, the more important reason is that as a scholar, we still have to express our views clearly. We are not afraid that this may offend some people or even lead to some risks. If you want to have an independent point of view, you have to play your own role. I'm afraid that sometimes it is inevitable. You must have a commitment and a responsibility.

21st century: in the "battle between Baowan" and "Baowan", what kind of pressure do you have to support the management of the company?

Watson: there must be a lot of pressure. For example, China is a shareholder culture. At that time, some "comrades in arms" from the academic circles came forward to oppose me and publicly said, "Huasheng is not right. Of course, it is the shareholders who decide. The operators work for people. Why should they express their opinions?" Like this is pressure from an academic point of view.

In addition, from the above, what is the risk of abusing yourself? It must have taken advantage. Vanke and Wang Shi must have promised you good. What kind of private transaction do you have. It's also pressure. I was splashed with dirty water for no reason. At that time, there were thousands of swearing words on my Sina Weibo. All kinds of people speculated about you from the bad side.

Moreover, because of the great influence of the matter, including the concern of the relevant government departments, there was also a certain degree of pressure. Under such circumstances, how to speak and how to adhere to their own views, but also take into account all aspects. So the pressure is actually on all sides.

But to tell you the truth, I don't regret it. Some people will think that you fought a bad battle and you didn't get anything. It's not worth it. I don't think people can be so utilitarian. I don't say that I am more selfless and fearless. It's impossible. I have my own selfishness and fear. But at some points, you feel that if you don't speak, you will be sorry for others and yourself.

So I think people still have to have some spirit, not so much calculation. In the future, Vanke is still a direction of the governance structure of China's listed companies. More and more large-scale enterprises can not be run by the government, nor are they completely family owned, but are truly modern enterprises.

The modern enterprise is that there may be tens of thousands of shareholders, but no one specifically manages the managers. Instead, there are market and legal constraints, which make these managers and talented people play a role. For example, Alibaba, Tencent, Ma Yun and Ma Huateng are small shareholders. If they are led by large shareholders, they may be removed at any time. Therefore, we are now reforming the securities market, and we have begun to introduce a double equity structure, allowing the management to have a greater voice and decision-making power. All of these are in line with the development of the situation. Especially for technological innovation, we should give full play to these experiences Therefore, I think what I have done is of great value and directional significance. There are many things that were misunderstood or criticized at that time, including that there may be different views today. It doesn't matter.

21st century: what do you think is the biggest impetus of this event to the capital market?

Watson: I think one of the biggest driving forces is that it starts to make people realize that the company is not necessarily a big shareholder, and the shareholders have to control it themselves. I think that the importance of the product management staff is very important after the discussion. Later, we saw the later evolution of rugli. It is difficult to say that it was not affected by the Vanke incident. For another example, now that we have introduced the double equity system into the science and technology innovation board and the growth enterprise market, can't we see the shadow of Vanke's argument?

It is more important for entrepreneurs to take control of the development of their companies. This is not good for the long-term development of the majority of shareholders.

On capital reform: registration system is "second share reform"

21st century: what suggestions do you have for the future development of China's capital market independent director position?

Mr. Watson: I think the most fundamental thing is related to our corporate governance structure. At present, the independent directors are nominated by the major shareholders, because the major shareholders have large voting rights. In this case, the independent directors are basically friends, agents and relatives of the major shareholders. How can we expect these independent directors to play an important role.

Therefore, among the modern multinational companies in the world, there are no so-called major shareholders. The major shareholders are usually 5% and 10% of the shares, and may also be investment companies or insurance companies. In this case, independent directors occupy more than half of the seats of listed companies. Naturally, it plays a very important role, forming a very independent force for the management and shareholders Time even plays a leading role. Therefore, China's independent director system can not play a role, which has something to do with its nomination system.

Therefore, I also put forward some suggestions. For example, independent directors, especially in the ownership structure with a dominant share, should more represent the interests of small and medium shareholders. Can minority shareholders be nominated as independent shareholders? Is it possible for our securities industry association to set up a pool of independent directors? Is there a large number of qualified and willing independent directors for you to choose from? Then, when selecting independent directors, the majority shareholders evade and the minority shareholders vote? In this way, the role of independent directors in the board of directors is obviously different. It will be more independent and the transparency of the board of directors will be greatly improved.

How can the independent director system really play a role? This is also the opinion I have raised many times since the "Baowan dispute". So far, some of the things we have just talked about have played a very good role in promoting. For example, we have seen the double equity system of expanding the management level, key technology and decision-making power of management personnel. We have seen that the system has blossomed, but there is no progress in the aspect of independent directors. We hope that the regulatory authorities and all sectors of the society can pay attention to this issue, so that the company's The board of directors can better represent not only the interests of large shareholders, but also the interests of small and medium-sized shareholders.

21st century: what other major reforms do you think the regulatory authorities should focus on, or should our market promote?

In fact, the reform of the stock market is the second reform of the stock market system. Registration system can not be understood literally, just as students are also registered system, but they need to pass the examination to enter a good school. Therefore, there is actually an invisible threshold in it. What is related to the registration system is the market-oriented reform, including issuing pricing, raising funds, etc. administrative control still exists, can we abolish it at once? I'm afraid there will be problems.

A series of reforms, including legal level, basic system level, listed company governance level and delisting system level, should be promoted. In fact, the name of registration system reform can be used, but in fact, it is the market-oriented reform of the whole securities market. It is just like the international index funds that put forward many requirements for us, which shows that we are still in line with the international standard market There should be more distance between marketization and marketization.

It is said that the securities market is the Pearl in the crown of the market economy. It is the most sensitive one. It can reflect all information, wind and grass. Therefore, a high degree of marketization and legalization is the basic condition to ensure the smooth operation of the market. China's capital market is only 30 years old. Although it is based on modern technology, it is still in its early stage.

21st century: as a promoter and witness, what message do you have for the future development of China's capital market?

Hua Sheng: in addition to its economic function, the securities market is also equivalent to dozens of hundreds of universities. Everyone learns from his own losses and gains, and has the best effect and the most profound lesson. It has a huge educational effect on the whole society and the entire market economy, and is of great significance to the development of the national economy. Therefore, I have great confidence in the future development of China's securities market, and the prospect is very bright.