Date: July 4, 2012 Source: Money Week
Special interview of Money Week with Gao Jianping, Board Chairman of Industrial Bank
After this round of financial crisis, we deeply understand that well-established and effective corporate governance is the fundamental guarantee for the sustainable development of a commercial bank. As an essential element for the improvement of corporate governance, the board of directors should make scientific judgment over the development and changes of situation, play its decision-making function practically, and take into consideration the overall development of the bank.
I. The commercial bank should establish scientific development strategies and good value guidelines
rtant role in allocating resources for the economic development of China, it is of significant social and public properties. The commercial bank is expected to take into full consideration the interests of shareholders, depositors, employees and other stakeholders, establish clear development strategies and good value guidelines, and ensure their effective implementation in the company. The development strategies of the commercial bank are drafted by the management team based on research and then submitted to the board of directors which will carry out demonstration sufficiently and make final decision. In particular, the strategies will cover such areas as the medium- and long-term development planning, strategic objectives, business concept, and market positioning. On the basis of paying attention to the general development strategies, the commercial bank should also stress on supporting strategies concerning capital management, risk management, talent development and information technology.
During the process of formulating the general development strategy, the board of directors should take into full account such factors as market environment, macroeconomic situation, and the commercial bank's risk tolerance and comparative advantages, define its market positioning, give prominence to its differentiated and characteristic businesses, and build its own core competitiveness. During the process of developing the capital management strategy, the bank should take into full consideration such factors as its risk management situation and potential development trend, capital structure, quality and supplementing channels. During the process of establishing the talent development strategy, the bank should set up a well-established and scientific mechanism for talent selection, employment, training and retaining, gradually realize market-oriented HR allocation and promote its own sustainable development.
In the meantime, the board of directors of the commercial bank should assess and deliberate the development strategies regularly, adapting such strategies to the changes in business situation and market environment. The board of supervisors should supervise the development, implementation and assessment of the development strategies by the commercial bank. The senior management team should develop scientific and reasonable annual operation management objective and plan within the development strategy framework, report the objective and plan to board of directors, and then implement them. And the team should also formulate the regulations for employees' behaviors and accountability system, and establish the corresponding mechanism to respond to and handle problems. Moreover, the commercial bank should actively perform its social responsibilities in the economic, environmental and social aspects, cooperate in implementing the macroeconomic control and financial regulation policies of the state, and release its CSR report to the public.
II. The commercial bank should consolidate their risk management mechanisms and systems
Considering such factors as the commercial bank's risk situation, capital scale and development speed, the board of directors should establish overall risk management strategies, policies and processes, specify the main types of risks confronted by the bank, its risk appetites and appropriate tolerance index system, and supervise the management team to identify, measure, monitor, control and handle various risks in an effective way. The board of directors and affiliated risk management committee should regularly listen to the special report of the management team about the risks of the commercial bank, assess the risk level, risk management situation and risk tolerance of the commercial bank, and put forward opinions on the improvement of risk management. The management team should ensure that the risk management department has sufficient authority, position, resources and independency, and improve the transverse and longitudinal risk information transference system within the bank.
III. The commercial bank should ensure the effectiveness of internal control
The board of directors of the commercial bank should pay sustained attention to the situation of internal control, establish good internal control culture, supervise the management team to formulate relevant policies, procedures and measures, and control risks in the whole course. The commercial bank should establish and improve its internal control responsibility system, ensure that the board of directors, board of supervisors and management team can fully understand the responsibilities that they bear with regard to internal control. The board of directors and management team are responsible for the effectiveness of internal control, and they bear the liability for major losses due to ineffective internal control. The board of supervisors is responsible for supervising the board of directors and management team to improve the internal control system and regulations, and performs the obligation of supervising internal control.
The commercial bank should establish an independent department for supervising and assessing internal control, which should conduct effective supervision and assessment over the establishment and implementation of internal control regulations, and can report directly to the board of directors, board of supervisors and senior management team. The board of directors should be responsible for the engagement and dismissal of chief internal auditor and the officer in charge of the audit department. The chief internal auditor and the internal audit department should report the progress in audit work to the board of directors, board of supervisors and management team periodically, and submit the audit report in a timely manner. The board of directors, board of supervisors, and management team should make use of the problems discovered in internal audit effectively and take corresponding corrective measures in a time manner.
IV. The commercial bank should improve the incentive and restrictive mechanisms in a sustained manner
With owners and managers being separated from each other, it becomes an important part for corporate governance to establish incentive and restrictive mechanisms for the management team so that the management team can perform its responsibilities in the interests of the owners. The commercial bank should establish a system of responsibility performance assessment for directors and supervisors, and define the responsibility performance criteria of directors and supervisors. The assessment of the commercial bank over the responsibility performance of directors and supervisors should consists of self assessment, peer assessment, and assessment of the board of directors, board of supervisors and regulatory authorities. The board of supervisors should be responsible for the overall assessment over the responsibility performance of directors and supervisors of the commercial bank, and report the final results to the general meeting of shareholders and the regulatory authorities. For those directors and supervisors who fail to perform their responsibilities as prescribed, the board of directors and board of supervisors should give their opinions to deal with them and take corresponding measures.
At present, the corporate governance in China is shifting from administrative governance to economic governance, and market-oriented restrictive and incentive mechanisms for managers have not been established. The standardization of restrictive mechanism depends on that all stakeholders, with shareholders constituting the majority, can effectively participate in corporate governance through the internal governance structure and market-oriented external governance mechanism. In contrast, the incentive mechanism can directly adjust or change the behavior and motive of managers in participating in corporate governance. Therefore, under the circumstance that a market-oriented restrictive mechanism cannot be established quickly, it is of great importance to design a scientific incentive mechanism. The commercial bank should establish a scientific incentive mechanism in correlation with its culture, long-term objective, development strategy, risk management, overall benefit and post duty, and fair and transparent criteria for assessing the performance of the management team. The criteria should reflect the principles of protecting the interests of depositors and investors and guarantee that the short-term and long-term interests of the bank are consistent.
The commercial bank should set down talent training mechanism adapting to its own development and a salary management mechanism, which is seasoned with risk control, in harmony with its short-term and long-term incentives. It should establish a scientific performance assessment index system and break it down to each department and post as the basis for paying the performance salary. The performance assessment indexes of the commercial bank should cover economic benefit index, risk cost control index and social responsibility index.