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Industrial Bank Chairman Gao Jianping: I am but a Coordinator

Positioning himself as a “coordinator”, Gao Jianping stated that the scientific decision-making of the Board of Directors must be ensured fundamentally and systematically, including the capacity to correct oneself in the process of making decisions, in order to pave the right path for the Industrial Bank.

Gao is highly rapid and resolute in the way he works. The rapid speed at which he works is the product of his keen insight of the overall economic situation and financial development of China.

On June 24, the European Cup was already in full swing. Gao Jianping, the Chairman of the Industrial Bank's Board of Directors, agreed to our request for an exclusive interview at the Industrial Bank's Fuzhou Headquarters. In the daytime, Gao was the head of a national joint-stock commercial bank, busy with plans and strategies. At nighttime, he was an avid football enthusiast trying to squeeze time to watch the match. In his free time, Gao is fond of reading, enjoying the history of victories over mighty rivals. He is also fond of music as well. “I like classical music but also have a fancy for pop music, like Jay Chou”.

Gao has played the role of “watchman” at the Industrial Bank for more than eight years, during which time the assets of the Bank have gone from less than RMB 50 billion Yuan in early 2000 to the near one trillion seen at present. Furthermore, the ROE of the Bank has ranked first among the major domestic commercial banks for several years in a row.

A “Rule-abiding” Coordinator

How does a board chairman position himself? Where are the limits to his powers? It is commonplace in many Chinese companies for the board chairman to call of the shots.

Gao has an accurate positioning for his individual powers. “We must be fully aware that a board of directors is not a decision-making body headed by a chief-executive, so it shouldn't be the case that everybody does what the board chairman says”. As the chairman of the board, I am but a coordinator, and my duty is to do a good job in regards to communication and coordination.” To define himself as a coordinator instead of a chief is more of a clear-cut role-positioning than simply being low-profile. “He is an excellent leader but never imposes himself as the boss” This is the response given by board member Wang Guogang when asked to give an appraisal of Gao in a single sentence.

Such a role-positioning is also reflected in Gao's relationship with the Bank's president. Supervision regulations stipulate that no board chairman of a bank may concurrently act as its president. The essence of the board chairman is to ensure checks and balances in the board. This provision presents a problem: how is a board chairman to interact with management? Gao, claiming that “I am not an exceptionally particular man”, is good at handling major affairs. He holds that a board of directors is the decision-making core of an enterprise, and should excel in steering the direction, setting strategies and discussing major affairs. Following this, adequate space and freedom should be given to management for implementation. This is essential in ensuring that all levels of corporate governance do what they are meant to be doing and operate well. This will also work to promote the long-term stability and healthy development of the bank.

Power without supervision will inevitably lead to authoritarianism and corruption. In a listed company, there are always high expectations on the board of supervisors. The supervision function of the BOS is often greatly impaired since it is subject to the BOD and management as far as manpower and financial resources are concerned. When asked whether the Industrial Bank's BOS dares to supervise the BOD chairman or not, Gao laughed and replied, “I don't think that it is a question of whether they dare or not. I think our corporate governance, including the operation of the BOS, is decent and proper. They are endowed with their correspondent duties by both law and the system of the company. If they do not perform these duties, I think that it could only be deemed as dereliction of duty. Neither the board of directors or management think that the BOS is interfering in our affairs. This notion doesn't exist”

In addition to acting as the chairman of the board, Gao is also the Party Secretary of the Bank. When asked about the role the Party Secretary plays in the corporate governance of the Industrial Bank and whether this role affects the governance norm, Gao said, “The Party Leadership system has been written into China 's constitution. Therefore, it is not contradictory at all in a legal sense. The key point is that the law can't be broken in the decision-making process. The decisions made by the Party Committee cannot replace the decisions made by shareholders conference or by the BOD. If the intent of the Party Committee is to become the Bank's practice, it must be done by legal means and proceeded with according to the decision-making process stipulated in the Bank's Charter. Otherwise, it can not be put into practice. Over the years, I have not found that there is any contradiction between these two roles.”

The prices set for the initial public offering involved the interests of various parties. For old shareholders and the Bank, the higher the pricing is the better. New market investors hoped for lower pricing. At the supervision level, there was a hope that the pricing made by the Bank would leave a certain profit margin for the market. As the BOD chairman, Gao balanced and coordinated the interests of all parties with skill and ease. Fundamentally speaking, he adhered to the principle that the interests of all shareholders and the Bank as a whole are paramount. “The day just before we were going to head out on our road shows, the China Securities Regulatory Commission requested at the last minute that I discuss one final issue with them in Beijing . Much to my surprise, some willing investors were already waiting for us when Tang Bin, the BOD Secretary, and I arrived at Beijing . That day we talked with these people one by one, four to five groups altogether, until 3 a .m. the next morning. They all hoped that our pricing could be a little lower. Although the calls for lower pricing were very strong, we did not do as they wished. One reason was that we had to maintain the Bank's image on the market and the other was that we had to be accountable to our old shareholders.” The issue price was finally fixed at RMB 15.98 Yuan, with the interests of all parties balanced in a fairly sound manner. “Taking one Mao (there are 10 Mao in 1 Yuan) off the price would lead to a RMB 100 million Yuan reduction in capital”, added Tang Bin.

When it comes to law-abiding, there is a great example that demonstrates Gao's respect for the law. Once, a loan dispute was being analyzed in the Bank. Due to the fact that there was a certain degree of malpractice in operational procedure when the branch granted the loan, the court maintained that the Bank should bear a certain amount to the responsibility. Branch workers were not in agreement with this, believing that the judgment had “ignored the facts”, and requested headquarters to support it in lodging an appeal. In his response, Gao made his altitude clear: firstly, a practical and realistic work style should be adhered to and secondly, respect for the jurisdiction should be shown.

In this sense, Gao is truly a “rule-abiding coordinator”. As the saying goes, nothing can be accomplished without norms or standards. It is also true that talent can be fully displayed only in a disciplined domain. 

Non-Stop Self-Challenge

When Gao Jianping took over as the BOD chairman, the corporate governance in the Industrial Bank was much less sound than it is today. Thus there existed an opportunity for internal dominance. Yet, Gao, new and eager, chose an opportunity of another kind. He sought to impose more supervision on the board chairman. The action may be deemed as shooting oneself in the foot to a certain extent, but Gao viewed it as a self-challenge. “I assumed the post of the BOD chairman. If I wanted an easier ride, I could have assumed much more authority to save trouble. But as soon as I took office, I challenged myself to optimize the structure of the Bank's shareholders. After the share capital increase in 2001 and the introduction of foreign capital in 2004, substantial changes to the BOD were made, including the introduction of directors of foreign capital, the establishment of the independent director system and the introduction of economists to serve as independent directors, thus ensuring the independence and professionalism of the BOD. This was a self-challenge.” Up until June 30, the three largest shareholders of the Industrial Bank held stakes of 20.40%, 12.78% and 4.00% respectively. There are three directors of foreign capital and five independent directors in the BOD. Thus, a more rational shareholder structure and director constitution has been formed and a relatively complete mechanism for checking and balancing power in the BOD has been developed.

As to the reason why he sought a less “comfortable” ride by challenging himself, Gao thought it was a must. In other words, it was a must for the Industrial Bank's BOD to establish scientific decision-making both fundamentally and systematically. Specifically, it included the capacity to correct oneself in the process of making decisions. This ensured that the Industrial Bank was on the right path.

As well as the establishment of the independent director system in the general sense, the Industrial Bank also carried out a system of multiple-nominees for the election of independent directors in 2007. Those qualified could recommend candidates as independent directors. It should be said that such a self-challenge launched by Industrial Bank, in fact, left a big opening. When things are not under one's control, it is highly possible that certain "situations” may occur. Some worried that the election might go off track and asked whether there was a need to “guide on" the nominations and elections. In his instruction, Gao wrote that faith must be put in the investors and such restrictions were unnecessary. Gao was subsequently proved right

The renaming of the Bank again highlighted Gao's tendency to challenge himself. On its foundation in 1988, the Fujian Industrial Bank was positioned as a local bank. For a long period of time, it was considered as just an ordinary bank in Fujian that was limited in scale. In 1996, the Bank began to seek operation outside of Fujian Province and Gao volunteered to head the preparatory team for the Shanghai Branch. Shortly after the Branch opened, Gao, acting as the first branch president outside Fujian , was greatly affected by something he experienced. An old man in Shanghai opened an account at the Shanghai Branch on opening day, but came back the next day insisting that the account be closd. The reason he gave was “my wife thinks that I had our money deposited in Fujian Province ". Fully aware that the long-term development of the Bank had been marred by its name (the name gave the impression that it was a local bank), the people at the Industrial Bank hoped that the Bank could have a name that actually lived up to what it aspired to. The re-naming of the Bank called for great courage and insight at the time. Gao, with the courage of a reformist and the tactics of a banker, took the initiative to report his development ideas to the Provincial Party Committee and the Provincial Government, and won the support of provincial leaders. Lu Zhan'gong, the then Fujian Governor (currently Secretary of Fujian Provincial Party Committee) said, after conducting an investigation at the Bank, "It would be better to take out the word “ Fujian ”. Re-naming the Bank will help it develop on a national scale and better serve clients.” Having lost the word “ Fujian ”, the Industrial Bank set out on a nationwide journey. This re-naming paved the way for the rapid development of the Industrial Bank that followed.

An even bigger challenge came in the form of the transformation into a public company. After achieving the national strategy, Gao once again led the Industrial Bank on a new campaign to go public. This became a reality in 2007.

We can see, Gao, a rule-abiding man, is always keen to give himself a challenge. More significantly, these ceaseless challenges have produced results; they have not only brought about the vigorous and rapid development of the Industrial Bank but have also forged an outstanding banker.

Governing Style: Forceful or Weak

The board of directors is the decision-making core in corporate governance. In a sense, the board chairman is the core of the board. The “governing" style of a board chairman, more often than not, exerts a significant influence on the operation of the board and the development of the Bank.

When asked whether his governing style was strong or weak in nature, Gao did not give a straight answer. Instead, he said, “When there is a divergence in the BOD, we, in principle, do not put it to a vote. But this does not mean that the issue discussed will be set aside. Take the buyout of Foshan Commercial Bank for example. At the beginning, the BOD of the Industrial Bank was split over this matter. Later, after in-depth surveys had been conducted, we managed to reach a consensus. In the process of the survey, some directors put forward a number of constructive suggestions. When there is a divergence in the BOD, we may put the brakes on the issue discussed if it is not the right time to make a decision. We will come back for another demonstration after coordination. Is this being weak? Finally we arrived at a consensus and the matter was concluded. Is this being forceful? Perhaps, this can be better interpreted as being sound and pragmatic. One detail in this process has a slight hint of governing with force: Gao requested that directors in doubt free up time so that an on-site visit could be made to seek a consensus. “They have the right to hold different views but not to say that they have no time in their schedules.”

There are occasions when Gao is forceful. In recent years, the cash bonus in the Industrial Bank has remained at about one third of its profits. Questioned due to the small proportion of dividends, the Industrial Bank holds its own view: for the company, there must be a balance between short-term gain and long-term development. For a bank, it must be noted that this is an industry full of risks. There are doubtful debts and bad debts to handle and sufficient provisions have to be reserved and certain profits set aside to ensure development. Early this year when re-financing appeared in an endless stream across the market, some worried that the Industrial Bank would also get involved. However, the response was that the Industrial Bank would not jump on the bandwagon. Some investors hoped for a granting of bonus shares from the Industrial Bank. Gao holds that granting bonus shares cannot bring practical earnings for the vast number of investors and is only of help to a small number of institutions in increasing prices and selling them off to make gains. He insisted that the stable and continuous policy on dividends adopted by the Industrial Bank should remain as that of appropriate cash dividend. Finally, this dividend program was passed at a shareholder conference with a large majority.

“I work fast, but I don't know whether this is being forceful or not. In his work, Gao is a man of expeditious action. Such a style of work finds its basis on his keen insight of the overall economic situation as well as financial development in China . The Industrial Bank took over the credit cooperatives and city commercial banks successively in the cities of Yiwu, Taizhou, Foshan and Harbin . It was the first commercial bank in China to conduct branch expansion through the buyout of non-local banks and financial institutions. At the time, some directors assumed that restrictions on the establishment of branches by domestic banks would be loosened gradually and maintained there was no need to risk a buyout. Gao thought that this was too idealistic. “You can see, branch establishment is still an administrative resource even today with only a few quotas in a year. I believe that this situation will continue”.

Is he is forceful or weak? There is no single answer to this question. However, what we can see is that he is a pragmatic and insightful banker who fights for what he believes in.

Ever since 2000, Gao's “coordination” as he puts it has shaped a legitimate and highly efficient BOD and a fast-developing bank. The key to this has been his conscious compliance with laws and norms, desire to challenge himself, a sense of the big picture, pragmatism, insight and perseverance. In this sense, Gao is not only the “chief coordinator” at the Industrial Bank, but is also an excellent leader.

(Board of Directors, July 30, 2008)

 

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