The Board of Supervisors in the Industrial Bank has been seeking changes over the past few years. Whist we took an in depth look at the mode by which it fulfills its duties, our interests were aroused by the practice “service is the best supervision” adopted by the BOS.
Something once happened that left me not knowing whether to laugh or cry. A proposal was passed at the shareholder conference of a certain listed company which stipulated that the monthly allowance for directors was RMB 300 Yuan and for supervisors RMB 200 Yuan. After the conference, a supervisor approached a director, asking why the supervisors were given less. The director replied “Directors have a lot of responsibly! If something goes wrong, we are at more risk. So it's only natural that they get more.” This reply left the supervisor speechless.
In the past I have attended the shareholder conferences of some listed companies. The supervisors, as I observed, often did little more than simply reading out a BOS report to the audience. Some didn't even bother with this; the only thing that they did was to offer their signatures at the end of the conference. Although the responsibilities of a BOS were clearly specified in the 1993 Company Law, it remains an indisputable fact that the functions of the BOS are not performed in many enterprises. This has been so much the case the boards of supervisors are often dubbed as a “man of straw”.
In the Guidance on Corporate Governance of Joint-stock Commercial Banks released in 2002, the core status of the BOS in the supervision systems of joint-stock commercial banks is clearly defined. But how does this operate in reality? In search of an answer, we paid a visit to the Industrial Bank's BOS. Through the Industrial Bank, we hoped to gain a glimpse of the current situation of BOS establishment in China and explore the problems as well as their remedies.
Establishing Rules and Regulations for a New Path
In 2006, Bi Zhonghua, the then deputy president of the Industrial Bank, was elected as chairperson of the BOS. The Bank's BOS thus entered a new phase of development. Ms. Bi has been in the banking business since 1980. Having worked at numerous different positions, she has developed a working style that is best characterized as being prudent, pragmatic and efficient.
When elected as chairman of the BOS two years ago, she confessed that she was not entirely confident that she would be able to do a good job in this area as she had been working in operation and management for years. After assuming office, she discovered that the job was challenging, much different to what she had imagined. With rich experience working in operation and management, she had long been well aware of the problems that existed in the system and internal control, but never had the time to address them in the past. Working in the BOS gave her this opportunity.
With a new role, new duties and faced with a huge amount of complicated matters, Ms. Bi chose to focus her attention on several key areas. One of them was the establishment of rules and regulations.
After she took over the Bank's BOS in the latter half of 2006, the BOS office was set up and manned with full-time staff. Soon after, a series of rules and regulations were drawn up by the board, including Rules of Procedure for the Board of Supervisors, Information Exchange and Briefing System of the Board of Supervisors, Supervisor's Code of Conduct, Measures on Assessment of the Duties Performed by Supervisors.
When addressing the problem of information asymmetry, a frequently encountered obstacle in the performance of supervisor duties, the Bank's BOS did not treat it as a taboo. The answer provided by the BOS was to establish an information exchange and briefing system, the BOS work briefing system and a system in which supervisors would attend the BOD and senior management meetings. These systems made clear the channels for the BOS to acquire information on the Bank's operation and management and ensured that they remained open.
When a problem was exposed, it had to be corrected, otherwise the BOS was pointless. “If the situation was not addressed within the specified time limit, we would use the accountability system. With these systems in place, the effectiveness and seriousness of our supervision started to be seen.” Ms. Bi said.
It was this phase of system establishment that allowed the BOS to start working according to its true purpose in a totally independent manner.
Enhancing the Quality of Supervisors
The BOS in the Industrial Bank currently consists of nine members. Among them, four are equity supervisors, three are worker supervisors and two are external supervisors. Although the BOS is rationally constituted in terms of member structure, Ms. Bi believes that it can function well only when the roles of each member are brought into full play. Her approach is to emphasize the training of supervisors.
When it comes to training and learning, Bi has had her own special experience. Just after she had taken over the BOS, she was at somewhat of a loss about how to go about her work. At that time it just happened that a seminar on BOS work in joint-stock commercial banks was being held by the China Banking Regulatory Commission. At the seminar, Ms. Bi learned from the experience of experts and colleagues keenly and developed a clear understanding of the duties that a BOD is expected to perform and how they should perform them. Her choice to focus on supervisor training was a result of this seminar.
Shortly after the new Accounting Standard for Business Enterprises was released, the Bank's BOS invited a section chief from the Ministry of Finance to give a training course for its members in March 2007. Through the training, the supervisors were expected to gain a solid grasp of the influences exerted by the new Standard on listed banks so that the BOS can play a better role in financial supervision. Furthermore, a series of training courses concerning the new Company Law, Securities Law and related regulations were carried out. For the courses, senior lawyers from China and experts from the CBRC and Shanghai Stock Exchange were invited to give lectures.
The training of supervisors played a significant role in improving the performance of the BOS. With these trainings, Ms. Bi observed a great enhancement in supervision efficiency: The members now not only actively put forward their views but are also better at seizing the essence of matters.
Exploring New Modes of Work
According to the constitution of the Industrial Bank, the auditing department in the Bank shall be accountable to the BOD and report its work thereto. It shall accept guidance from the BOS in regards to its work. According to the work division among the Bank's senior leaders, Ms. Bi is also expected to provide assistance in managing the auditing department. Moreover, a worker supervisor doubles as the general manager of the auditing department. Thanks to this system and personnel arrangement, the BOS in the Bank is able to effect direct control over the auditing department, which has over one hundred members of staff. The auditing department is a powerful and effective unit
It is with this powerful and effective unit that BOS in the Industrial Bank works effectively. The depth and breadth of supervision and investigation are greatly enhanced while the potential of the auditing department is brought into full play.
“Our mode of operation has been recognized by the CBRC.” Ms. Bi said. This mode can be considered as one of the important explorations made by the BOS of Industrial Bank during the course of performing its duties.
Service Is A Kind of Supervision
“Service is the best supervision”. This is what Ms Bi often says.
With almost 30 years of experience in the banking industry and having occupied numerous different posts in that time, Bi has a good idea of where problems are most likely to occur and how to find them. Therefore, when time permits, Ms. Bi will take worker supervisors and BOS office staff on field visits to various branches to interact with the people on the front line. This has proved to be an effective means of discovering problems.
“Service is the best supervision” is possibly best represented in the investigations and surveys organized by the BOS.
In early 2007, Ms. Bi launched a round of intensive investigation and survey work not long after she had taken office. What prompted her to launch this investigation was a big question on her mind. At the time, Industrial Bank was launching trial reforms of the management system for retail business in certain branches, hoping to “promote a leap-frog development in retail business by taking the reform of systems and mechanisms as a breakthrough point”. Both headquarters and the branches considered this reform an important and necessary move and a major development direction for the whole bank. However, when it came to implementation, they all highlighted practical difficulties and were reluctant to implement it actively. What was the cause of this?
With this question, Ms Bi was determined to carry out a special investigation. The proposal gained substantial support from the BOD chairman and the president. With the efforts from the BOS, the cause was found and the problem was thus solved.
In 2007, the BOS launched four major investigations and examinations. In first half of 2008, the BOS completed another four. It was the determination that the BOS has shown in these investigations to discover and rectify problems that won it a great deal of respect throughout the Bank.
Achievements Need more the Strength of Teamwork
Ms. Bi often cautions her subordinates, achievements precede authority; as a supervisor, you are the ‘bad guy', don't try to get along with everyone and don't be afraid of upsetting people, no one will respect you if you never uncover any problems.
A close look at the development of the Banks' BOS over the last three years reveals a clear thread: namely, from strengthening the independence of the BOS, to enhancing the quality of supervisors, to exploring the ways the BOS fulfills its functions and finally looking for problems on the frontline. Along the path, the BOS has not only made considerable progress in self establishment but also built up authority through its step-by-step development.
“Considering that there is a system in place, refusing to supervise would constitute a dereliction of duty!” Gao Jiangping, the Bank's BOD chairman, said in regard to the BOS.
In the process of our interviews, it occurred to us that the sound functioning of the BOS in the Industrial Bank has had a lot to do with the Bi Zhonghua herself. The strength that she has used to steer the BOS is drawn from the vast experience and authority that she gained in years of managerial work. Therefore, we feel it necessary to raise the question, if she were replaced by someone else, would the BOS be like it is now? This is question that should not only be pondered by us but by the BOS at the Industrial Bank as well. ( From Board of Directors Magazine, by Guo Hongye, July 29, 2008)