Meng Xiangyun, Board Secretary, Chongqing Iron & Steel Company Ltd, looks at the governance practices of an A+H share listed company to illustrate the importance of effective checks and balances and incentive systems in modern companies, especially companies with mixed ownership.

Corporate governance is essential to the modern corporation. It clearly defines the rights, obligations and responsibilities of shareholders, directors, supervisors and the management, and establishes clear checks and balances among them. These parties have different roles in the company. Shareholders are the owners of the company who contribute capital to the company. Final decisions on the future of the company are made at shareholders’ meetings, the highest authority of the company. The board of directors, elected at shareholders’ meetings, makes decisions on the development objectives and key operations of the company and is delegated the governance of the company. The management, hired by the board of directors, executes the decisions of the board and is subdelegated the governance of the company. Supervisors are tasked by shareholders to oversee the work of the board of directors and the management to check whether their actions are in the interests of the shareholders and whether they carry out their duties properly. The fundamental principle of corporate governance is to establish checks and balances in the design of the top tiers of the company, allowing various parties to carry out their respective duties and responsibilities and guarding against operational risks, thereby maximising benefits to the company. In addition, as ‘delegates’, the board of directors, the board of supervisors and the management have roles and positions naturally different from those of shareholders. To enhance the governance of the company, effective incentives must be given to the directors, supervisors and managers to increase their sense of belonging and ownership, so that they are more committed to their work.

I. Background of the company

Chongqing Iron & Steel Company Ltd was established in 1997. With the approval of the former State Commission for Restructuring the Economic System of the People’s Republic of China and the former Securities Commission of the State Council, it issued overseas listed foreign shares (H shares) in Hong Kong in 1997, which were listed for trading on the Stock Exchange of Hong Kong. With the approval of the China Securities Regulatory Commission, the A shares issued by the company in the Mainland were listed on the Shanghai Stock Exchange in 2007. Due to a mismatch between the product portfolio of the company and market demand, relatively high costs, poor governance and continued poor sales of its products, the company faced delisting. Judicial reorganisation of the company started in July 2017 and was completed in December 2017. By implementing the reorganisation, consolidating assets, reducing liabilities, clearly delineating staff responsibilities and innovating its internal systems, the company evolved from a state-owned enterprise into a company of mixed ownership. The scale of its production and sales and its income and profits achieved a historical breakthrough.

II. Major governance issues

The ‘Guiding Opinions of the General Office of the State Council on Further Improving the Corporate Governance Structure of State-owned Enterprises’ points out that ‘the modern enterprise system has taken shape initially in most state-owned enterprises, but is far from perfect in practice. In some cases, effective corporate governance is not yet in place, with key problems including lack of clear delineation of powers and responsibilities, insufficient controls, and lack of checks and balances. Some boards of directors are ineffective and unable to play their intended role’. Prior to reorganisation, the company was a typical state-owned enterprise, facing corporate governance issues common among such enterprises. The major issues addressed by its corporate governance reforms included those highlighted below. 1. Board structure There were no proper rules governing the board structure and the election of board members. The board could not perform the functions and role of the board in a modern corporate governance structure. Limited in powers, the board of directors could not make decisions on the appointment and remuneration of the management. The interests of the company were not necessarily, nor directly, related to the personal interests of the directors. Directors did not have clear responsibilities, were not remunerated and were not accountable in substance. 2. Board independence There was no monitoring mechanism to achieve effective checks and balances. There were too many overlaps between the board of directors and management, and managers were basically members of the board. This reduced the independence of the board, affected the board’s ability to monitor the management, and undermined the checks and balances between the two. The responsibilities of the board of supervisors were not fulfilled and no accountability system was in place. 3. Incentive and control systems An effective incentive and control system was absent. Before the reorganisation, there was no rigorous appraisal and incentive systems for the management. No effective mechanism was in place for the appointment and removal as well as promotion and demotion of directors, supervisors and managers and for their remuneration to be increased or reduced.

III. Corporate governance reforms

Improving the corporate governance structure

After judicial reorganisation, the company took on the vigour of mixed ownership in a manner responsible to investors and shareholders. Corporate governance was enhanced. The controlling shareholder adjusted the governing structure of the company. Specific measures included those highlighted below. 1. Adjusting the structure of the board of directors. To allow the board of directors to fulfil its important role in the modern corporate governance structure, improvements were made to the composition, expertise and competencies of the board of directors. In terms of composition, while maintaining the total number of board members at nine, the number of deputy chairmen was increased to two and the number of independent non-executive directors was increased from three to four. 2. Making good use of specialised committees under the board. To better assist the board in its work, specialised committees comprising members with different professional expertise were formed. For example, currently the Remuneration and Appraisal Committee is chaired by an independent director with rich experience in strategic cost management, incentive system design and performance appraisal, while its members have extensive experience and practical expertise in various aspects including production and operation management, legal matters and management accounting. 3. Avoiding overlaps between the board and the management. To reduce overlaps between decision-makers and managers and avoid confusion in personnel or functions between the board of directors and the management, the management was also restructured. As a result, only one senior management staff is a member of both the board and the management. This facilitates independent and effective monitoring of the management by the board of directors on behalf of the shareholders, resulting in effective checks and balances between decision-makers and managers. 4. Adopting a market-oriented approach in the selection and appointment of managers. Leveraging the background and resources of the majority shareholders, the board introduced a management team with rich experience in the management of the iron and steel industry. Adopting a market-oriented approach, managers who know the industry and give priority to management were appointed. By adjusting the growth strategies, implementing change management and launching an internal competition scheme, the growth impetus of the company was greatly enhanced.

Improving corporate governance systems

1. Refining the meetings of shareholders, directors and supervisors. The requirements regarding meetings of the shareholders, directors and supervisors were refined. For example, agenda items are currently broadly invited (from line functions, directors, supervisors and senior managers) and motions are drafted according to a set of standards. The board secretary coordinates the efforts of the finance department and senior management in reviewing relevant meeting documents in advance. Every participant of the meetings is accurately informed of the time and venue of meetings and provided with the agenda and meeting documents before the meetings in a timely manner. Board support services are planned in detail and every part of the entire process is fully attended to. In addition, to ensure the effective implementation of the board’s decisions, a ‘board decision notification system’ was adopted whereby the board issues timely written notifications to management regarding matters that require the management’s attention and implementation. The management has to report progress to the board in a specified timeframe to complete the cycle. 2. Preparing or amending internal documentation on governance. To regulate the operations of the board and enhance the quality of its decisions, the documentation for eight fundamental areas of governance, including the standing orders of the board of directors, were amended and refined. Balancing delegation and restriction of powers as well as control and efficiency, the board amended the operational rules of the general manager to further clarify the decision-making process and the powers of the general manager. Moreover, the company put in place several basic management systems, including those relating to project investment, share investment and internal controls.

Setting up a sound incentive and control system

1. Introducing remuneration reforms. Having determined the positioning of its business in the market and the direction of its human resources strategy, the company introduced an incentive scheme to lower costs and enhance efficiency and a profit-sharing scheme, which are linked to cost control and operational performance. The purpose of the ‘dual incentive and control schemes’ is to motivate staff. The company pursued reforms to its incentive system. Results are used as the overriding criteria in assessing performance. Work is assigned according to the duties and responsibilities of respective managers, and performance indicators are refined. Job briefs with performance indicators are signed with senior managers, whose performance is appraised in accordance with their achievement of the monthly, quarterly and annual indicators, with their remuneration determined accordingly. 2. Implementing a staff shareholding scheme. In order to motivate staff members in general and encourage sharing of responsibilities, risks and profits, the company introduced both performance incentive and shareholding incentive systems. The interests of the management, key personnel and shareholders are now aligned. The objective was to allow staff to grow together with the company, to promote the long-term steady growth of the company and to enhance shareholders’ value. The draft employee shareholding scheme for 2018–2020 was considered and approved at the meeting of the shareholders in May 2018, and the proposal on the first phase of the employee shareholding scheme was considered and approved at the meeting of the directors in December 2018. The employee shareholding scheme is a measure to achieve the sharing of profits and risks among the workers and owners of the company. It helps improve the engagement of staff and the competitiveness of the company, engage key personnel, and align the interests of the management, key personnel and shareholders, and is hence conducive to the long-term steady growth of the company. 3. Extensive delegation of powers by the board. The board of directors fully supports the management in its reforms of the operations and management of the company. Powers are sufficiently delegated to management to allow managers to take up substantial responsibilities, and strong incentive is given to senior managers in terms of remuneration. The management respects and efficiently implements all decisions of the board of directors.

IV. Initial results of governance reforms

Through judicial reorganisation, Chongqing Iron & Steel Company Ltd found a new lease of life. By enhancing its governance structure and governance systems, the production and operations of the company returned to normal. Among the measures taken, the implementation of incentive and control systems and checks and balances in corporate governance are the most important. Leveraging the advantages of mixed ownership, various stakeholders are involved in the decisions of shareholders and directors to achieve effective decision- making. The board and the management have separate functions. While checks and balances are in place through the operation of a monitoring system, the board and the management also complement each other. A market-oriented approach is adopted to recruit and appoint managers, and a market-oriented appraisal system has been introduced. Through an employee shareholding scheme, managers are motivated to participate in the operation and governance of the company, and an effective talent recruitment and incentive and control mechanism is put in place. Corporate governance is essential to the modern enterprise. Whether the corporate governance framework is effective is an important factor affecting the performance of a company. Good governance can rationalise the shareholding structure of the company, enhance its internal control, reduce its agency costs, enhance its core competitiveness and improve its operational performance, and results in the sustainable development of the company. Meng Xiangyun, Board Secretary Chongqing Iron & Steel Company Ltd

公司治理个案分析 - 激勵與制衡

重庆钢铁股份有限公司董事会秘书孟祥云结合一家A+H股上市公司的公司治理实践，探讨现代公司尤其是混合所有制企业的公司治理中激励与制衡的重要性。

法人治理结构是现代企业制度的核心，是明确划分股东大会、董事会、监事会和管理层之间权利、义务和责任以及明确划分相互制衡关系的一整套制度安排。从公司角色上来看，股东大会由公司股东组成，股东是企业出资人即所有者，股东大会对企业前途命运有最终决定权，是公司的最高权力机构；董事会是股东大会选举产生的，对公司发展目标和重大经营活动进行作出决策，是公司治理权力第一次授权的受托方；管理层由董事会聘任，具体执行董事会的决策，体现了公司治理的第二次授权；为监督董事会与管理层是否维护或损害股东利益、是否忠于职守，股东大会委托监事会负责监督董事会及管理层 。 公司治理的最基本原则就是要在设计公司顶层权力时，应该能够通过治理体系的运作达到各方权力的制衡，从而使各方能够各司其职、各负其责，有效防范企业经营中的风险，最终实现企业的利益最大化 。此外，鉴于董事会、监事会及管理层的“受托人”角色，与股东大会角色和立场存在天然的差异，想要提高公司管治效率，必须对董事会、监事会及管理层等实行有效的激励，增强其对公司的归属感、主人翁意识，进而提高其工作积极性。

公司基本情况

重庆钢铁股份有限公司成立于1997年，经原中国国家经济体制改革委员会及原国务院证券委员会核准，于1997年在香港发行境外上市外资股（H股）并在香港联合交易所(联交所)上市交易；2007年经中国证券监督管理委员会核准，该公司在中国境内发行的A股股票在上海证券交易所上市。因产品结构与市场需求错配、企业成本偏高、公司治理效率低下、公司的产品市场持续低迷等因素，该公司濒临退市边沿，2017年7月进入司法重整程序，并于2017年12月完成司法重整。 通过实施重整方案、夯实资产、降低负债、人员优化、机制创新等一系列重整改制措施，该公司从国有企业转变为混合所有制企业，并在后续的产销规模、收入、利润等指标方面取得了历史性的突破。

二、公司治理存在的主要问题

国务院办公厅曾在《国务院办公厅关于进一步完善国有企业法人治理结构的指导意见》中指出，“多数国有企业已初步建立现代企业制度，但从实践情况看，现代企业制度仍不完善，部分企业尚未形成有效的法人治理结构，权责不清、约束不够、缺乏制衡等问题较为突出，一些董事会形同虚设，未能发挥应有作用。” 在实施重整方案前，该公司为典型的国有企业，在公司治理方面同样存在着国有企业法人治理方面的通病。公司治理改革主要处理如下问题：

董事会结构

董事会结构及成员选举形同虚设，无法有效发挥董事会在现代公司治理机制中的功能和作用，董事会权力缺项，不能决定经理层聘用、薪酬等；企业的利益与董事个人利益没有必然的、直接的联系；董事的责任不明确，没有报酬，亦没有实质性问责。

董事会的独立性

缺乏有效制衡的监督机制，董事会和经理层过度交叉，经理层人员基本上是董事会成员，降低了董事会的独立性，削弱董事会对经理层的监督与制衡；监事会的责任不落实，也没有相关的问责制。

激励及约束机制

缺乏有效的激励及约束机制，公司在实施重整方案前未建立严格的管理考核及市场化激励制度，未能使董事、监事及管理层真正实现能进能出、能上能下、收入能增能减。

三、公司治理改革

完善法人治理结构

该公司完成司法重整后，本着对投资者和股东负责的态度，充分发挥混合所有制的活力，优化公司治理结构，控股股东对公司治理层结构进行了及时调整，具体为： 调整董事会结构。为确保董事会能够有效发挥其在现代公司治理机制中的重大作用，该公司从董事会人员构成、知识结构和能力素质等三个方面对董事会人员结构进行了调整优化。在人员结构方面，在保持董事会共9名成员的情况下，将副董事长增加至2名，独立非执行董事由3人增加至4人。 积极发挥董事会专业委员会作用。为更好地协助董事会工作，各专业委员会成员均由具备专业特长的董事会成员组成，如公司薪酬与考核委员会，由在战略成本管理、激励机制设计和绩效考核领域具备丰富经验的独立董事任主席，成员分别具有生产经营管理、法务、管理会计等方面的丰富经验和较强的实务运作专业能力。 避免董事会与管理层混同。为减少公司决策层和管理层的重叠度，避免董事会与管理层在人员或职能上的混同，公司对管理层也进行了调整，仅有1名高管穿透公司治理层和管理层。这更有利于董事会代表股东对管理层进行独立、有效的监督，从而实现决策层与管理层之间的有效约束与制衡。 市场化选聘职业经理人。公司借助大股东的背景和资源，董事会引入具有丰富的钢铁行业管理经验的管理团队，以市场化方式引入懂行业，重管理的职业经理人，通过调整发展战略，实施管理变革，推行“赛马机制”等措施，企业活力得以迅速提升。

完善公司治理制度

精细规范三会制度。精细规范股东大会、董事会、监事会（“三会”）的召集、召开。例如，从多角度（职能部门、董事、监事、高级管理人员）征集会议议题、按规范要求编写议案；董秘提前组织财务部及高级管理人员审阅相关会议资料；会前及时、准确地将会议时间、地点、议程及会议资料通知到每一位参会人员，细化会务工作，落实全流程的每一个细节。 此外，为确保董事会决议的有效落实，实行“董事会抄告”制度，即董事会以书面函件的形式及时将需要管理层关注并落实的事项传达到公司管理层，管理层在规定时间内向董事会报告执行情况，形成良性闭环。 新增、修订内部管理制度文件。为提高董事会规范运作和科学决策水平，公司修订完善了《董事会议事规则》等8个基本管理制度。在兼顾授权与约束、管控与效率等管理需要的基础上，董事会修订了《总经理工作细则》，进一步明晰了决策程序和总经理的权限。此外，公司新增了关于项目投资、股权投资、内控管理等多个基本管理制度。

推进薪酬改革，建立健全激励约束机制

推进薪酬改革。公司确定了未来市场化业务的目标定位与人力资源导向，推出与成本改善、经营业绩强挂钩的“降本增效激励计划”和“利润分享计划”，实行“双激励、双约束”，充分激发员工活力。 公司积极推进激励机制变革，践行以绩效为第一评价标准的业绩导向，并按照职责分工，细化绩效指标，与公司高管签订了绩效指标任务书，按月、季、年度指标完成情况进行考核，并据此兑现薪酬。 实施员工持股计划。为充分调动广大员工积极性，实现责任共负、风险共担、利益共享，公司实行绩效激励和股权激励并举，协同管理团队、核心骨干人员和股东的利益，真正实现员工与企业共同发展，促进公司长期稳定发展和股东价值提升，2018年5月，该公司股东大会审议通过了《2018年至2020年员工持股计划（草案）》；2018年12月，公司董事会审议通过了《关于公司第一期员工持股计划的议案》。 实施员工持股计划是完善公司劳动者和所有者利益共享、风险公担机制的体现，有利于提高员工的凝聚力和公司竞争力，绑定核心员工，协同管理团队、核心骨干人员和股东的利益，从而有助于促进公司长期稳定发展。 董事会大胆授权，与管理层相辅相成、互相成就。董事会全力支持管理层开展经营管理及改革举措等各项工作，并进行充分授权，董事会让管理层担起足够分量的担子，同时又给予强有力的高管薪酬激励，管理层尊重并高效执行董事会的所有决议。

四、 公司治理改革初见成效

重庆钢铁股份有限公司通过司法重整实现涅槃重生，并通过完善治理结构、治理制度等一系列公司治理改革使公司生产经营步入正轨。其中，注重实现公司治理中的激励与制衡至关重要——利用混合所有制企业的优势，使多种所有制主体参与到股东会、董事会决策中，形成有效决策机制；董事会与管理层职能分离，建立相互制衡的监督机制，同时又相辅相成、互相成就；采用市场化的职业经理人选聘方式，建立市场化的薪酬考核机制；通过员工持股方式调动经理层参与公司经营和治理的积极性，建立起有效的人才选用和激励约束机制。公司治理是现代企业制度的核心内容，它的合理与否是影响企业绩效的重要因素之一。良好的公司治理可以促进企业的股权结构合理化，加强企业的内部控制，降低企业的代理成本，增强企业的核心竞争力，提高企业的经营业绩，实现企业的可持续发展。 重庆钢铁股份有限公司 董事會秘書孟祥云