11

Actual Corporate Conditions in Mongolia

Actual Corporate Conditions in Mongolia:
An Investigation into Corporate Governance of
Ulaanbaatar’s Listed Companies
Kanichi Iijima*Introduction

In June of 2011, a project team of professors from the Social Systems Research Institute of Chuo
Gakuin University conducted a survey to investigate corporate governance in Ulaanbaatar in
Mongolia. The survey was carried out in cooperation with Professor Tuvd Dorj, vice-presidentof the Mongolian Academy of Sciences, Tuvshintur Tsend-Ayush, Corporate Governance
Development Center, D. Dugerjav, Commissioner & Vice-Chairman of the Financial Regulatory
Commission of Mongolia, and Sanaser Sodnomdorj, School of Economic Studies at the National
University Mongolia. We very much appreciate their cooperation.
In addition, this paper would never have been completed without the help of Chuluun Tuya,
general manager of the Economy and Business Union and B. Oyuntsetseg, from the MongoliaJapan Center For Human Resources Development. They not only provided interpreting services,
but also assisted in designing, implementing, and reflecting on the questionnaire, making
contacts and arranging our meetings, conferences, etc. I would here like to express my sincere
thanks for their assistance.
As of May 2011, there were 335 listed companies, including 22 state-holding companies, on
the Ulaanbaatar Stock Exchange. We focused on 140 companies among them, receiving 100
responses to the surveys we asked them to complete (response rate: 71.4%), accounting for29.9% of all listed companies. We thus feel that the results reflect current conditions among
Mongolian listed companies to a high degree of accuracy. This survey was the ﬁrst of its kind to
be undertaken in Mongolia.
Our project team had three objectives:(1) Understand the corporate frameworks of Ulaanbaatar’s listed companies(2) Approach Mongolian corporate governance from a general viewpoint(3) Understand how listed companies are coping with environmental problems*Professor, Graduate School of Commerce, Faculty of Commerce, Fellow of Social Systems Research Institute,
Chuo Gakuin University

12social system review Vol. 3

Each of the three objectives had the following content:(1) Outline of the Corporate Frameworks of Ulaanbaatar’s Listed Companies
We wanted a ﬁrmer grasp on the corporate frameworks of Ulaanbaatar’s listed companies. We
therefore had to understand a company’s type of business, capital size, number of employees,
gross sales per year, etc. Five ﬁelds thus characterized each company’s proﬁle:1) Industries were grouped into 17 types, taking into consideration actual conditions in
Mongolia.
2) Capitalization size was divided into eight levels.
3) Numbers of employees were divided into eight levels.
4) Yearly sales were divided into eight levels.
5) We asked the year of founding, of the establishment of the company, and year to be listed.
(2) Approaching Mongolian Corporate Governance from a General Viewpoint
We approached Mongolian corporate governance from a general viewpoint, studying not only
the innovations of independent directors, advisory boards, and accounting advisors, but also theactual conditions of corporate ownership. The questionnaire was thus divided into these fourareas:
1) Current situation of the board of directors, number of directors on the board, participationin the board of directors by non-executive or independent directors, the existence of
certain regulations for the board of directors, the number of times per year the board of
directors meets, whether or not directors receive compensation, etc.
2) The actual situation regarding stock holdings by the founder or his relatives. At the sametime, considering the modern political history of Mongolia, we examined how manynational companies’ stocks the state holds.
3) What executive or managerial positions or managerial role a founder or his relatives
might assume for a company; also, the current oversight role for management.
4) Whether a company has a codified management policy, business philosophy, ethicalregulations, etc.
(3) How are Listed Companies Dealing with Environmental Problems?
We wanted to learn how listed companies are dealing with environmental problems. The
questionnaire focused on three areas:
1) Whether activities of the company were a cause of environmental pollution.
2) Whether there are explicit laws, ministerial ordinances, or other ordinances regarding theenvironment that a company has to obey.
3) Whether a company is addressing environmental problems: taking measures against

13

Actual Corporate Conditions in Mongolia

pollution, protecting surrounding areas from harmful effects of its activities, preparing abudget for maintaining a healthy environment, etc.

1. Corporate Frameworks(1) Type of Business
The ﬁrst step of the investigation was to classify the 97 responding companies. The sectors withthe greatest number of businesses were “Electricity, Heating, Water Supply”, “Construction”,“Real Estate/Rent” at 15 companies (15.5%) each. Next were “Warehouse/Transport andallied industries” at 14 companies (14.4%), and then “Manufacturing”, “Wholesale, Retail” at
13 companies (13.4%) each. Also, there were some companies who classiﬁed themselves as
belonging to more than one sector, as up to three sectors could be selected.
1), 2) and 3) in Table 1-1 belong to primary industries. They have 25 checks. Five of the
responding companies checked both 1) and 2). That means 20 out of 97 companies (20.6%)
are classiﬁed as primary industries. It might be said that this number is not a small one for the
Ulaanbaatar Stock Exchange. This evidence makes it clear that primary industries are of great
importance to Mongolia. In contrast, only 13 companies (13.4%) checked 4) “Manufacturing”, a
relatively low percentage. 7), 8), 9) and 12) belong to tertiary industries. 45 out of 97 companies(46.4%) are classiﬁed as tertiary (seven out of 52 companies checked more than one).
Table 1-1. Categories of Business among Mongolian Listed Companies
Total 159 (97 companies)(%)

1) Agriculture

88.22) Food manufacturing, Stock-raising

66.2

3) Mining

11

11.3

4) Manufacturing

13

13.4

5) Electricity, Heating, Water Supply

15

15.5

6) Construction

15

15.5

7) Wholesale, Retail

13

13.4

8) Hotel, Food and Beverage

10

10.3

9) Warehouse ･ Transport and Related Industries

14

14.4

10) Communication

44.111) Maintenance ･ Repair

77.212) Real Estate, Rent

15

15.5

13) Education

00.014) Health ･ Insurance

11.015) Sports, Amusement11.016) Finance44.117) Others

22

23.7

Under the free market system, the activities of big companies are very inﬂuential in a society’s

14social system review Vol. 3

economic life, providing leadership to many other big or small companies in a country. It istherefore valuable for us to study about big companies in Mongolia. In the following, I focus on
12 big companies who checked “ 10.000.000.001 or more” in Table 1-3. I label them ‘Big-12’,
and their categories of businesses are in Table 1-2.
Table 1-2 Big-12’s Business Categories
Categories
of Business

Number ofCompanies

Mining1

Manuf- Electricity, Const- Wholesale, Hotel,
Commu Mainten
acturing Heating,ruction Retail
Food and nication ance ･
Water
Beverage
Repair
Supply
1

7

1

2

1

1

4

Real
Estate,
Rent

Others3

1

Looking at the Big-12 in detail, seven companies checked “Heating, Water Supply” and4 of them also checked “Maintenance ･ Repair”. That means all the companies who are in“Maintenance ･ Repair” are also in “Electricity, Heating, Water Supply”.
(2) Capitalization
In looking at capitalization size, we came to the conclusion shown in Table 1-3. The greatest
number of companies, at 24 (25.0%), was in the range 100,000,001- 500,000,000 (¥6,250,00
1-¥31,250,000). Next were 20 companies (20.8%) in the range 1,000,000,001- 5,000,000,000(¥62,500,001-¥312,500,000), 12 companies (12.5%) in the range 10,000,000,001 or more(¥625,000,001 or more), 11 companies (11.5%) in the range 10,000,001- 50,000,000(¥625,001-¥3,125,000), and 11 companies (11.5%) in the range 5,000,000,00110,000,000,000 (¥312,500,001-¥625,000,000).
We should be wary of jumping to conclusions from these ﬁgures however, as Mongolia’s landarea is four times that of Japan. As it has a population of about 2.78 million and Ulaanbaatar
has 1.15 million inhabitants (2010), it means approximately 40% of the nation’s people livein only one city. In contrast, Japan has 128 million people (2010), 46 times that of Mongolia.
Mongolia’s nominal GDP in 2010 was 6,690 million dollars and 2,207 dollars per person,
1/754th and 1/18th respectively, that of Japan. The fundamentals between the two countries are
so different that comparisons might seem to have little meaning. Nevertheless, we are forced to
discuss and compare everything regarding States’ economic situations by the same standards
due to globalism. In this paper, therefore, I have converted the Mongolian Tugrug into JapaneseYen (¥1≒ 16, as of 2011/07/14). It might be useful to compare these economic conditions withJapan or other countries.
Table 1-3 Capitalization Size
Total Responses 96 (100%)
1)
2)
3)
4)

10,000,000 or less
10,000,001- 50,000,000
50,000,001- 100,000,000
100,000,001- 500,000,000(¥625,000 or less)(¥625,001-¥3,125,000)(¥3,125,001-¥6,250,000)(¥6,250,001-¥31,250,000)

2
11
6
24

2.1
11.5
6.3
25.0

15

Actual Corporate Conditions in Mongolia

5)
6)
7)
8)

500,000,001- 1,000,000,000
1,000,000,001- 5,000,000,000
5,000,000,001- 10,000,000,000
10,000,000,001 or more(¥31,250,001-¥62,500,000)(¥62,500,001-¥312,500,000)(¥312,500,001-¥625,000,000)(¥625,000,001 or more)

10
20
11
12

10.4
20.8
11.5
12.5

1

※ ¥1≒ 16(3) Employees
Table 1-4 shows the variety in scale of full-time employees at Mongolian companies. 45 of 96
companies (46.9%) have 50 or less employees. 16 companies (16.7%) have 51-100 employees.
This results, therefore, in 63.6% of Mongolian listed companies having 100 employees or less.
Table 1-4 The Number of Full-Time Employees

1)
2)
3)
4)
5)
6)
7)
8)

50 or less employees
51-100101-150
151-200
201-300
301-500
501-1,000
1,000 or more

Total 96

(100%)

45
16
6
5
8
6
5
5

46.9
16.7
6.3
5.2
8.3
6.3
5.2
5.2

Four companies of the Big-12 checked “1,000 or more”, two companies “501-1,000”, and two
companies “301-500”. These results largely matched the estimates we had made based on therespective capitalizations. It was unexpected, however, for two companies to answer that theiremployees were 50 or less. This might be due to special circumstances due to their classiﬁcation
as “Real Estate, Rent”.
Table 1-5 Big-12’s Full-Time Employees
Full-Time Employees Number of Companies
50 or less151-200
201-300
301-500
501-1,000
1,000 or more

2
1
1
2
2
4

(4) Yearly Sales
We can see there are two peaks in Table 1-6: 50,000,000 or less (20.0%) and 1,000,000,0013,000,000,000 (22.5%).
1

According to the foreign exchange rate site Jprate.com (http://www.jprate.com/jpy/asia-paciﬁc.html), the exchange
rate as of July 14, 2011 was ¥1= 15.68962.

16

social system review Vol. 3

Table 1-6 Yearly Sales

1)
2)
3)
4)
5)
6)
7)
8)

50,000,000 or less
50,000,001- 100,000,000
100,000,001- 500,000,000
500,000,001- 1.000,000,000
1,000,000,001- 3,000,000,000
3,000,000,001- 8,000,000,001
8,000,000,001- 13,000,000,000
13,000,000,001 or more(¥3,125,000 or less)(¥3,125,000-¥6,250,000)(¥6,250,000-¥31,250,000)(¥31,250,000-¥62,500,000)(¥62,500,000-¥187,500,000)(¥187,500,000-¥500,000,000)(¥500,000,000-¥812,500,000)(¥812,500,000 or more)

Total 80

(100%)

16
5
14
14
18
3
5
5

20.0
6.3
17.5
17.5
22.5
3.8
6.3
6.3

There are three companies in the Big-12 who checked 12) “ Real Estate, Rent” in Table 1-1.
Two of them whose yearly sales were the lowest of the Big-12 and had 50 employees or lesschecked 5) 1,000,000,001 - 3,000,000,000 in Table 1-6 and the other 6) 3,000,000,001 8,000,000,001. While at this stage it would be premature to draw a conclusion, the data seems toindicate that the yearly sales per capital of the Real Estate or Rent industry is smaller than otherequally capitalized industries.
Table 1-7 Big-12’s Yearly Sales
Amount of Sales Per Year
(valid responses from 9 companies)
1,000,000,001- 3,000,000,000
3,000,000,001- 8,000,000,001
8,000,000,001- 13,000,000,000
13,000,000,001 or more

Companies22
1
4

The questionnaire asked companies the percentage of their stock that was owned by the state.
There are at present 22 state-owned companies on the Ulaanbaatar Stock Exchange and 15 ofthem responded to our questionnaire. Of these, eight companies answered “80% or more”, ﬁve
answered “51-60%”, one answered “71-80%”, and one answered “10% or less” (see Table 1-8).
On the other hand, 83.9% of listed companies answered “None”. It was a rather higher scorethan we expected. Our speculation is that private founders hold the stock of many listedcompanies.
Table 1-8 The Ratio of State-Held Stocks

1) None2) 10%or less3) 10-20%
4) 21-30%
5) 41-50%
6) 31-40%
7) 51-60%
8) 61-70%

Total 93

(100%)

78
1
0
0
0
0
5
0

83 .9
1.1
0.0
0.0
0.0
0.0
5.4
0.0

17

Actual Corporate Conditions in Mongolia9) 71-80%
10) 80% or more

1
8

1.1
8.6

In the Big-12, eight companies are state-owned companies. Four of the 12 are 100% privatecompanies. Two of the four have “50 or less” full-time employee companies and are in the “RealEstate, Rent” industry.
Table 1-9 The Ratio of State-Held Big-12’s Stocks
State-Held Stock

Companies

None
50-60%
71-80%
80% or more

4
1
1
6

2. Corporate Governance Frameworks(1) Number of People on Board of Directors
In listed companies on the Ulaanbaatar Stock Exchange, the number of people on boards of
directors is set at nine in principle. Therefore, the main question concerning the size of theboard of directors is whether it has nine members or not. Table 2-1 shows the results. 81 of 96
companies were in compliance with the rule. 11 companies had eight or less members, and four
companies had ten or more.
Table 2-1 Number of Directors
Total 96

(100 %)

11
81
2
2

11.5
84.4
2.1
2.1

1) 8 members or less2) 9 members3) 10-13 members
4) 14 members or moreAmong the Big-12, 11 have nine directors, and one, a state-holding company, has 14.
(2) Non-Executive Directors
Many scholars recognize that active participation by non-executive or independent directors
raises the effectiveness of corporate-governance. In response to our question whether companies
were hiring non-executive directors, three quarters answered “yes”.
Table 2-2 Non-Executive Directors
Response

Total 93(100 %)

1) Yes
2) No

73
20

78.5
21.5

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social system review Vol. 3

According to Table 2-3, 7 of the Big-12, 58.3%, answered “yes”. This figure is smaller
than Table 2-2’s, of 78.5%. Four of five in the Big-12 who answered “no” are state-holding
companies. As eight of the Big-12 are state-holding companies, we understand that half of them
have no non-executive directors. It might be safer for state-holding companies if they do nothave non-executive directors. As these companies are already under government control, theeffect might be almost the same as having such directors. Doubts remain however regarding its
appropriateness.
Table 2-3 Big-12’s Non-Executive Directors
Response

Number of Responses 12(100 %)

1) Yes
2) No

7
5

58.3
41.7

(3) Number of Non-Executive Directors
We asked each company the number of their non-executive directors, and received 70 responses(see Table 2-4); 14 companies have 7 people (20.0%), 12 companies have ﬁve and eight people
each (17.1%), and ten companies have six people (14.3%).
Table 2-4 Number of Non-Executive Directors
Total 70 Percentage in Parentheses
Number of Non-Executive Directors
Number of Companies(percentage)

1

2

3

4

5

6

7

8

9

10

11

2
4
6
5
12
10
14
12
4
0
1
(2.9) (5.7) (8.6) (7.1) (17.1) (14.3) (20.0) (17.1) (5.7) (0.0) (1.4)

As to Table 2-5, we do not have sufﬁcient information to identify characteristics of national andprivate companies due to the scarcity of samples.
Table 2-5 The Number of Big-12’s Non-Executive Directors
Total 7
Number of Non-Executive Directors

1

2

3

4

5

6

7

8

9

10

11

Number of Companies

1

0

0

1

0

1

2

1

1

0

0

(4) Independent Directors
Another important point for corporate governance is whether companies have independent
directors or not. Non-executive directors, as mentioned above, are not in charge of management
execution but have only a monitoring function. On the other hand, independent directors are
non-executive directors who have a completely neutral position vis-à-vis the company and its
executives.

19

Actual Corporate Conditions in Mongolia

As seen in Table 2-6, 55 of 93 companies answered “yes”, amounting to 59.1%. Almost 60%
of listed companies have independent directors, of which some companies have two or three oreven six or more. From these results, doubts remain whether they fully understand the difference
between non-executive director and independent director.
Table 2-6 Independent Directors
ChoicesNumber of Answers 93(100 %)

1) Yes
2) No

55
38

59.1
40.9

Table 2-7 Number of Independent Directors. Total Number of Responding Companies: 53. Percentages are
in Parentheses.
Number of Independent Directors

1

2

3

4

5

6

7

8

Answered Corporate Number(percentage)

5
(9.4)

11
(20.8)

9(17.0)

5
(9.4)

5
(9.4)

11
(20.8)

4
(7.5)

3
(5.7)

Table 2-8 and Table 2-9 show the presence/absence of Big 12’s independent directors andnumber of independent directors.
Table 2-8 Big-12’s Independent Directors’ Presence/Absence
Total 12
1) Yes2) No

66Table 2-9 Big-12’s Number of Independent Directors
Total Number of Responding Companies: 6
Number of Independent Directors

1

2

3

4

5

Number of Responding Companies

0

3

0

2

1

(5) Board of Directors’ Regulations
An important requirement for corporate governance is whether codified regulations aremaintained. We asked listed companies whether there were regulations for their boards of
directors. The result is shown in Table 2-10. 74.5% of companies said “Yes”, which was
not surprising. We would therefore like to direct attention to the 24 companies (25.5%) thatanswered “No ”. All of the Big-12 answered “Yes”.
Table 2-10 Presence/Absence of Managing Board Regulations
Total Responses: 94
1) Yes
2) No

70
24

(100 %)
74.5
25.5

20

social system review Vol. 3(6) Number of Board of Directors’ Meetings Per Year
We questioned listed companies on how many times per year they held board of directors
meetings. The results are shown in Table 2-11. As is well known, a board of directors is
the organization within a company that creates a strong management base and carries out
appropriate decision making thoroughly and promptly, and at the same time monitors theexecution of business activity. Problems exist, therefore, for the three listed companies who
answered, “Board of directors meetings have not been held at all”. 90% of companies held boardof directors meetings ten times or less a year. 60% of listed companies held meetings once orless a quarter. It can be said that they do not yet recognize the importance of boards of directors.
Their boards of directors are not functioning effectively.
Table 2-11 Number of Board of Directors’ Meetings Per Year
Responses
1) None2) 1-4 times3) 5-10 times4) 11-14 times5) 15 times or more

Total 95

(100 %)

3
57
29
5
1

3.1
60.0
30.5
5.3
1.1

In the Big-12, 4 companies hold board of directors meetings 11-14 times a year and one 15
times a year. Table 2-11 shows that six companies hold board of directors meetings 11 times ormore a year and ﬁve companies among them belong to the Big-12. It can be said that only the
big companies hold board of directors meetings with such frequency.
Table 2-12 Big-12’s Board of Directors’ Meetings Per Year
Responses
1) None2) 1-4 times3) 5-10 times4) 11-14 times5) 15 times or more

Total 120
1
6
41(7) Salary and Other Compensation for Directors
In the questionnaire, we asked whether directors were provided with salaries or other forms ofcompensation. The results were that 47 in 95 companies (49.5%; see Table 2-13) paid directors asalary or provided other forms of compensation. 48 companies (50.5%) answered that they paid
nothing to the directors. These raise the question of whether the director itself is an honorary
post. This situation deserves further consideration.
Among the Big-12, 10 in 12 companies paid the directors some salary and compensation. As
mentioned earlier, eight companies of the Big-12 are state-holding companies and one company
among them provides its directors with neither salaries nor other compensation.

21

Actual Corporate Conditions in Mongolia

Table 2-13 Provision of Salary and Compensation for Directors
Responses
1) Yes2) No

Total 95

(100 %)

47
48

49.5
50.5

Table 2-14 Big-12’s Provision of Salary and Compensation for Directors
Responses

Total 12

1) Yes2) No

102(8) Form of Compensation to Directors
To this question, we had responses from 48 companies. The results are totaled in Table 2-5.
Table 2-6 shows the totals of the Big-12. Both have the same tendencies. 20 companies provide
the director with only stocks, 8 companies provide both stocks and salary, and 9 companies, only
a salary.
In the Big-12, there were 11 answers from ten companies. Four companies provide the director
with only stocks. Three companies provide a salary, and one company provides both stocks
and a salary. Only two companies out of them all provided a bonus and they were not from theBig-12.
Table 2-15 Form of Compensation to Directors
Responses

Total 60 (48 companies)(%)

1) Stocks2) Bonus
3) Salary4) Others

30
2
18
10

62.5
4.2
37.5
20.8

Table 2-16 Form of Compensation to Directors in the Big-12
Responses

Total 11 (10 companies)(%)

1) Stocks2) Bonus
3) Salary4) Others

5
0
4
2

50.0
0.0
40.0
20.0

(9) Ratio of Company’s Own Stocks Held by Founder or His Relatives
For corporate governance, a big issue is how the founder of a company or his relatives are
involved with management of the company. Table 2-17 is a list of the ratio of a company’s own
stocks held by the founder or his relatives. 30% of companies answered that their founder or his
relatives did not own stocks. Special attention should be paid to the companies that have 61% ormore of their stocks held by the founder or his relatives. There were 33 such companies, almost
40 percent of listed companies. Until now, in the standards to be met by listed companies, there22social system review Vol. 3

have been no restrictions on the holdings ratio for big shareholders.
In two thirds of all the companies, the founder or his relatives were big shareholders. Especially
noteworthy is that one third of all companies had concentrated ownership. Among the Big-12,
11 companies had no such shareholders; one company did, holding 61-70%.
Table 2-17 Holding Ratio of Company’s Own Stocks by Founder or His Relatives
Responses
1) None2) 10% or less3) 10-20%
4) 21-30%
5) 31-40%
6) 41-50%
7) 51-60%
8) 61-70%
9) 71-80%
10) 81% or more

Total 90

(100%)

28
6
4
7
2
5
5
11
11
11

31.1
6.7
4.4
7.8
2.2
5.6
5.6
12.2
12.2
12.2

(10) Participation Conditions in Management by Founder or His Relatives
We asked listed companies whether their founders or their relatives were participating inmanagement. We also asked them if they were participating in their company’s management,
what official position they held. This question permitted multiple answers, so we had 152
responses from 91 companies. In 69 companies (76%), the founder or his relatives participatedin management. Their main ofﬁcial positions were president, director, or chairman of the boardof directors. They were leaders in the company and conducted corporate governance (see Table
2-18).
Table 2-18 Founder or His Relatives’ Participation in Management
Responses
1) Do not participate in management
2) Chairman of the board of directors
3) President
4) Director of the bureau5) Director
6) President of the subsidiary company
7) others

Total 152 (91 companies)

(%)

22
39
45
5
33
3
5

24.2
42.9
49.5
5.5
36.3
3.3
5.5

Among the Big-12, 11 companies answered this question. Eight companies answered that theirfounder or his relatives did not participate in management. At one company, their founder or his
relatives served as chairman of the board and as a director, at one company, as president, and at
one company, in other capacities. In the large majority of companies in Mongolia, the ownershipand management were combined (or owner managers). On the other hand, among the Big-12,
we can see that there is a separation of ownership and management. Most of the state-holding

23

Actual Corporate Conditions in Mongolia

companies in the Big-12 answered, they “Do not participate in management”.
Table 2-19 Founder or His Relatives’ Participation in Management among the Big-12
Responses

Total 11

Do not participate in management
Chairman of the board or director
President
Others8111(11) Whether the Chairman of the Board Concurrently Holds the Post of Executive
OfﬁcerOnly one in 93 companies answered, “yes” to the question whether the chairman of the board
concurrently holds the post of executive officer. Therefore, it is not the case that in listedcompanies in Mongolia the chairman of the board and executive ofﬁcer are the same person.
Table 2-20 Whether the Chairman of the Board Concurrently Holds the Post of Executive Ofﬁcer
Responses
1) Yes2) No

Total 93

(100%)

1
92

1.1
98.9

(12) Who Supervises the Senior Management?
Table 2-21 is the result for the question, “Who supervises the senior managers?” 79 companies
answered that the board of directors supervises the senior managers. This means 85% ofcompanies recognize the boards of directors’ governance. Therefore, there are 14 companies
who are not subject to governance by their board of directors. Only 9 of the 14 companies were
subject to governance by the big shareholders.
Table 2-21 Who Supervises the Senior Management?
Responses
1) Board of directors
2) External auditors
3) Shareholder’s meeting4) Big shareholders5) Others

Total 167 (93 companies)

(%)

79
25
26
30
7

84.9
26.9
28.0
32.3
7.5

Among the Big-12, senior managers of 11 companies are governed by boards of directors
and eight companies by external auditors. Therefore, most of their senior managers arebeing supervised by two organizations. On the other hand, four companies are governedby shareholders’ meetings. Two companies are governed by big shareholders, with one ofthese being a government owned company. However, both of these companies also undergo
simultaneous governance by shareholders’ meetings, boards of directors, and external audits.

24social system review Vol. 3

Table 2-22 Supervision of Senior Management among the Big-12
Responses

Total 25 (12 companies)

1) Board of directors
2) External auditors
3) Shareholders’ meeting4) Big shareholders

11
8
4
2

3. Corporate Response to Environmental Problems(1) Experience with Environmental Problems
At the end of the questionnaire we asked the listed companies whether they had experience withenvironmental problems. In Japan, the Basic Environment Law has been in force since 1993.
In this law, environmental pollution (“kogai” in Japanese) is classified into seven fields: air
pollution, water pollution, soil contamination, ground subsidence, noise, vibration and offensive
odors. We investigated whether listed companies had experience with these seven kinds ofpollution. We provided three possible responses: they are “not generated”, “generated in the past
but solved already” and “generated and not yet solved”. The results from the 89 companies that
responded are shown in Table 3-1.
Table 3-1 Experience with Environmental Problems
Total Number of Responding Companies: 89
Environmental problems Not generated Generated in the past but
already solved

Generated and not yet
solved1

Air pollution

65

9

11

2

Water pollution

69

7

6

3

Soil contamination

66

9

7

4

Ground subsidence

72

6

3

5

Noise

59

12

12

6

Vibration

61

12

8

7

Offensive odors

66

9

7

8

Others18

In looking at the column, “Generated in the past but already solved”, the most common problems
cited are “noise” and “vibration”, with 12 companies each. Following these are “air pollution”,“soil contamination” and “offensive odors”, with nine companies each. In the column, “Generated
and not yet solved”, the most common problem is “noise”, with 12 companies. The next is“air pollution”, with 11 companies, “vibration”, “soil contamination”, and “vibration”, with
8 companies each. These two columns show the same tendencies. All of them involve serious
environmental problems. Air pollution, water pollution and offensive odors especially affectpeople’s health, but these phenomena were allowed to continue for a long period. We hope theyﬁnd and implement solutions as soon as possible.

25

Actual Corporate Conditions in Mongolia(2) Law, Ministerial Ordinances, Ordinances Concerning the Environment
As is widely understood, few environmental problems can be solved by one company or area
alone. That is why a law, a ministerial ordinance, or an ordinance, etc., is needed. We therefore
asked how listed companies are dealing with them.
43 in 90 companies (47.8%), or almost half, answered that they had laws, ministerial ordinancesor other ordinances related to the environment which they had to observe. 27 companies (30.0%)
answered that they were not subject to such laws (see Table 3-2). In the past, Japan had a serious
pollution problem, called the “Four Major Pollution Diseases,” which killed a lot of people. It
was caused by people overlooking serious negligence being hidden by economic development.
We believe these lessons could apply to every developing area in the world.
Table 3-2 Laws, Ministerial Ordinances, and Ordinances Concerning the Environment
Responses

Total 90

(100%)

43
27
20

47.8
30.0
22.2

1) Yes2) No3) I don’t know

(3) Dealing with Environmental Problems
We enquired as to how companies were dealing concretely with environmental problems. This
question allowed two or more answers. The result is Table 3-3. 45 companies, almost half ofthe listed companies, answered “Eco-friendly business” and 37, or more than 40%, answered“Energy-saving measures”. About 20% answered “Development of environmentally friendly
products”, “Buy second-hand goods or recycled articles”, and “Dispose of garbage in accordancewith the laws”.
Table 3-3 Dealing with Environmental Problems
Responses
1) Eco-friendly business2) Development of environmentally friendly products
3) Reduce consumption of environmental assets
4) Use natural energy5) Buy second-hand goods or recycled articles
6) Use of recycled raw materials
7) Energy-saving
8) Environmental education to employee in the company
9) Dispose of garbage in accordance with laws10) Others
11) Do nothing

Total 217 (88 companies)

(%)

45
18
11
10
18
12
37
28
18
9
11

51.1
20.5
12.5
11.4
20.5
13.6
42.0
31.8
20.5
10.2
12.5

(4) Inﬂuence of Environmental Protection on Companies
We enquired as to what positive influences environmental protection had on companies. As
can be seen in Table 3-4, there were eight answers from which to choose. As a result, many
companies chose “Improve images of company”, “Improve employee’s consideration for the26social system review Vol. 3

natural environment”, or “Improve employee’s morality”. “Expectation for the reduction of
expenditures” was fourth. These effects show that, regarding environmental protection, every
company needs to view its prospects in the long-term. If they expect instant proﬁt, there is adanger that the company might follow the wrong road. Therefore, management strategy in thisarea is very important, and at the same time, is deeply related to the following question.
Table 3-4 Inﬂuence of Environmental Protection on Companies
Responses

Total 187 (81 companies)

%

40
16
11
29
28
23
19
15
6

49.4
19.8
13.6
35.8
34.6
28.4
23.5
18.5
7.4

1) Improve image of company
2) Increase productivity
3) Build trust with ﬁnancial institutions4) Improve employees’ consideration for the natural environment5) Improve employees’ morals
6) Expectation for the reduction of expenditures7) Improve reputation among private organizations
8) Increase sales9) Others(5) Budget for Environmental Protection
Environmental protection presents difﬁcult ﬁnancial problems. In general, if a company invests
money for protecting the environment, it is hard to see immediate effects. Therefore, it is very
important that a company makes stakeholders understand its long-term management strategy,
though this is not an easy task. That is why many and various environmental problems are
occurring around the world.
To the question whether they had budgets for environmental protection, 27 companies (31.4%)
answered “not at all”. Also, about 30 percent of companies had only minimal budgets for it.
That means more than half of listed companies didn’t consider environmental problems to bevery important. This prompts serious worries about the destruction of Mongolian nature, thepurest natural environment in the world. It might result in an irreparable loss of wealth.
Table 3-5 Budget for Environmental Protection
Total 86
Not at all

1,000,000
or less

1,000,0013,000,000

3,000,00010,000,000

10,000,00050,000,000

50,000,000
or moreCompanies

27

23

11

18

5

2

Percentage

31.4

26.7

12.8

20.9

5.8

2.3

4. Some Conclusions

Based on the results of the survey, we came to the following conclusions:
From the viewpoint of corporate governance,Actual Corporate Conditions in Mongolia

27(1) Many companies are characterized by being owner-managed, i.e., they have major
stockholders who are the founder or founder’s relatives.
(2) It should be pointed out that almost all boards of directors of listed companies have outside
directors and independent directors.
(3) It is a very interesting fact that in 50.5% of companies, the directors are not paid. This raises
the question: Is the director itself an honorary post, one of the responsibilities of the major
stockholders, or do other incentives exist for the directors?
(4) There are relatively few listed corporations whose stocks are held by the state in Mongolia,
compared with that of China; as opposed to this, many enterprises in Mongolia have beenfounded by investors from the private sector.
(5) Formal and institutional conditions for boards of directors are generally fulﬁlled: there are
codiﬁed and enacted rules, they maintain the required number of directors, and include outside
or independent directors, etc. There is concern, however, if boards of directors are functioning
effectively as management overseers, as at present more than 60% of boards of directors meetless than four times per year.
※

In carrying out this questionnaire in Mongolia, I received the help of many people, as I
described at the beginning of this paper. I want here to express my sincere appreciation to all
those concerned. Especially, I want to express my gratitude to Professor Toshio Kikuchi. It
might have been impossible to write this paper without his academic guidance and personal
networks in Mongolia. I am also grateful to John Dolan, Associate Professor at Chuo Gakuin
University. The English version of this paper would never have been completed without
his help in reading through it and making the necessary corrections. I am also grateful to
Nergui Battuya, a very bright graduate school student of mine, for helping to translate thequestionnaire and its data from Japanese into Mongolian and vice-versa.

Reference・Hirata, Mitsuhiro, The Theory of Manager Self-Governance: Socially Trustworthy Companies (Chuokeizaisha,2008).
・Kikuchi, Toshio, The Theory of the Modern Corporation: Responsibility and Governance (Chuokeizaisha,2007).
・Iijima, Kanichi, “The Background of Corporate Scandals: The Existence of Structural Faults-A Hypothesis,”in Kikuchi, Toshio, Hirata, Mituhiro, Koutou, Isuke, The Company’s Responsibility, Governance, and Revival:from an International Perspective (Bunshindo, 2008).
・Itami, Hiroyuki, Japanese Corporate Governance (Nihonkeizaisinbunsha, 2004).
・Inagami, Takeshi, Mori, Junjirou, Corporate Governance and Employees (ToyoKeizaiShinpoSha, 2004).
・Katube, Nobuo, Introduction to Corporate Governance, (Bunshindo, 2004).
・Study on Economics and Management, XXV, No.3 (Research Institute of Capital Formation, The Japan
Development Bank, September 2004).
・Yokomizo Masao, Nikko-Research Center, Analyzing Japan’s Economy based on Business Cycles(Nihonkeizaisinbunsha, 1991).
・Sakuma, Nobuo, Corporate Governance in Asia (Gakubunsha, 2005).
・Miyamoto, Kouhei, Corruption and Corporate Governance (Chuokeizaisha, 2005).
・Kikuchi, Toshio, An Examination of Market Economies and Privatized Corporations (Bulletin of Research

28social system review Vol. 3

Institute of Economic Science, College of Economics, Nihon University, Volume 27, 1999).
・Iijima, Kanichi, “Problems of Japan’s Corporate Governance,” Annals of the Japan Academy for Consumption
Economy, XXIX (2007).
・Problems of Corporate Governance of Japan’s Small and Medium-Sized Non-Listed Companies: Report andAnalysis of Survey (Workshop of Corporate Governance in Graduate School of Chuo Gakuin University, Chuo
Gakuin University, December 2008).
・Problems of Corporate Governance of Japan’s Listed Companies: Report and Analysis of Survey (Workshop
of Corporate Governance in Graduate School of Chuo Gakuin University, Chuo Gakuin University, December2008).
・Problems of Corporate Governance of Japan’s Small and Medium-Sized Non-Listed Companies: Report andAnalysis of Survey (Workshop of Corporate Governance in Graduate School of Chuo Gakuin University, Chuo
Gakuin University, December 2010).
・Problems of Corporate Governance of Japan’s Small and Medium-Sized Non-Listed Companies: Report andAnalysis of Survey (Workshop of Corporate Governance in Graduate School of Chuo Gakuin University, Chuo
Gakuin University, December 2011).

29

Questionnaire Response Sheet《Reference》《June 2011》

Questionnaire Response Sheet
Please reply by June 20 using reply envelope.
Please reply to the following questions by ﬁlling in the number of applicable answer in thebox of each reply column.

I. About the outline of your company
1. To which type of industry does your enterprise belong to among the following?
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
17)

Agriculture
Food manufacturing, Stock-raising
MiningManufacturing
Electricity, Heating, Water Supply
Construction
Wholesale, Retail
Hotel, Eat and Drink
Warehouse ･ Transport and allied industries
Communication
Maintenance ･ Repair
Real Estate, Rent
Education
Health ･ Insurance
Sports, Amusement
Finance
OthersPlease indicate up to three types of industry applicable to your company. →2. Please inform us of the amount of capital of your company.
1)
2)
3)
4)

10,000,000 or less
10,000,001- 50,000,000
50,000,001- 100,000,000
100,000,001- 500,000,000

5)
6)
7)
8)

500,000,001- 1,000,000,000
1,000,000,001- 5,000,000,000
5,000,000,001- 10,000,000,000
10,000,000,001 or more

Please ﬁll in applicable number. →30social system review Vol. 3

3. Please inform us of the number of regular employees of your company.
① 50 people or less
② 51-100 people③ 101-150 people④ 151-200 people⑤ 201-300 people⑥ 301-500 people⑦ 501-1,000 people⑧ 1,000 people or more

Please ﬁll in applicable number. →4. Please inform us of the annual sales of your company.
1)
2)
3)
4)

50,000,000 or less
50,000,001- 100,000,000
100,000,001- 500,000,000
500,000,001- 1,000,000,000

5)
6)
7)
8)

1,000,000,001- 3,000,000,000
3,000,000,001- 8,000,000,000
8,000,000,001- 13,000,000,000
13,000,000,001 or more

Please ﬁll in applicable number. →5. Please inform us of the business foundation year of your company, incorporation-procedures
year, and listed year.
① Business foundation year
② Incorporation-procedures year
③ Listed year

II. About Board of Directors
1. Please inform us of the number of the board of directors of your company.
1) 8 or less people2) 9 people3) 10-13 people4) 14 or more people

31

Questionnaire Response Sheet

Please ﬁll in applicable number. →2. Do you have a non-executing director on the board of directors of your company?
1) Yes2) No
Please ﬁll in applicable number. →If your answer was 1), please inform us of the number.
3. Do you have an independent director on the board of directors of your company?
1) Yes2) No
Please ﬁll in applicable number. →If your answer was 1), please inform us of the number.

4. Does the board of directors of your company have regulations?
1) Yes2) No
Please ﬁll in applicable number. →5. How many times per year do the board of directors of your company hold meetings?
1) None 1-4 times2) 5-10 times3) 11-14 times4) 15 or more times
Please ﬁll in applicable number. →32social system review Vol. 3

6. Does your company provide a salary or remuneration to its directors?
1) Yes2) No
Please ﬁll in applicable number. →6-1 If your answer was 1), please inform us of the type of remuneration.
1) Stocks2) Bonus
3) Salary4) Others (Please describe concretely.
Please ﬁll in applicable numbers. Multiple answers allowed. →7. What percent does the state hold of the stocks of your company?
1) none2) less than 10%3) 10−20%
4) 21−30%
5) 31−40%
6) 41−50%
7) 51−60%
8) 61−70%
9) 71−80%
10) 80% or more
Please ﬁll in applicable number. →8. What percentage of the company’s own stock does the founder or his relatives hold?
1) none2) less than 10%3) 10−20%
4) 21−30%
5) 31−40%
6) 41−50%
7) 51−60%
8) 61−70%
9) 71−80%
10) 80% or more
Please ﬁll in applicable number. →)33

Questionnaire Response Sheet

III. About Management
1. Do the founders or their relatives participate in the management of your company?
what kind of posts are they engaged in?
1) Do not participate in management
2) Chairman of the board of directors
3) President
4) Bureau director
5) Director
6) President of a subsidiary company
7) others(In the case of 7, please describe concretely:

If so,)

Please ﬁll in applicable numbers.
Multiple answers allowed. →2. Does one person hold the posts of both chairman of the board of directors and CEO?
1) Yes2) No
Please ﬁll in applicable number. →3. Who is superintending management?
1) Board of Directors
2) External auditors
3) Shareholder’s meeting4) Big shareholders5) Others (Please describe concretely:
Please ﬁll in applicable numbers.
Multiple answers allowed. →)34social system review Vol. 3

IV. About management policy, management philosophy, ethical codes, etc.
1. Is your company’s management policy or management philosophy, etc., codiﬁed?
1) Is not codiﬁed
2) Is codiﬁed
3) Codiﬁcation is now under consideration
4) Others (Please describe concretely:)
Please ﬁll in applicable number →2. Is the ethical code codiﬁed?
1) Is not codiﬁed
2) Is codiﬁed
3) Codiﬁcation is now under consideration
4) Others (Please describe concretely:)

Please ﬁll in applicable number →V. Experience with environmental problems
1. Has your company faced the following environmental problems due to its own activities?
Environmental
problems
1

Air pollution

2

Water pollution

3

Soil contamination

4

Ground subsidence

5

Noise

6

Vibration

7

Offensive odors

8

OthersNot generated

Generated in the past but Generated and it has notalready solved
solved yet

2. Are there laws, ministerial ordinances, or other ordinances, etc., relevant to the environment
which must be observed in managing an enterprise?

35

Questionnaire Response Sheet

1) Yes (Please write law’s name :2) No3) I don’t know)

Please ﬁll in an applicable number →3. How is your company dealing with environmental problems?
1) Eco-friendly business2) Development of environmentally friendly products
3) Reduce consumption of environmental assets
4) Use natural energy5) Buy second-hand goods or recycled articles
6) Use of recycled raw materials
7) Energy-saving
8) Environmental education to employees in the company
9) Dispose of garbage in accordance with laws10) Others
11) Do nothing)

Please ﬁll in applicable numbers. →Multiple answers allowed.
4. What kind of inﬂuence has environmental protection had on your company?
1) Improve image of company
2) Increase productivity
3) Build trust with ﬁnancial institutions4) Improve employees’ consideration for the natural environment5) Improve employees’ morals
6) Expectation for the reduction of expenditures7) Improve reputation among private organizations
8) Increase sales9) Others ()
Please ﬁll in applicable numbers. →Multiple answers allowed.
5. Is there a budget sufﬁcient for environmental protection in your company? (Please indicate○ applicable number.)

36social system review Vol. 3

Not at all1

1 1,000,000
or less2

1,000,0013,000,000
3

3 3,000,00110,000,000

10,000,00150,000,000

4

550,000,001
or more6