zhou xiaochuan : take care of the stakeholders and improve corporate governance speech by mr zhou xiaochuan, governor of the people ’ s bank of china, at the china economic summit, beijing, 23 may 2006. * * * ladies and gentlemen, good morning! it is an honor to have been invited to attend this meeting and i would like to talk about the issue of stakeholders in corporate governance. i choose this topic because of three reasons. one is that this summit is on developing high technology industries and my topic shall reflect this main theme. as mr. kim mentioned just now, this industry is knowledge - based and needs a lot of talented people. therefore, we shall say that the corporate governance in this field is notably different from that in the traditional industries. second, the issue of stakeholders also relates to harmonized growth ; and third, in the new economic environment, the development of present companies may be different in terms of investor - employee relationship. the government has reiterated that the main direction of state - owned enterprise reform is shareholding reform. at present, significant progress has been achieved in share - holding reform of the state financial enterprises in the banking, insurance and securities sectors with the most noticeable results in state - owned commercial banks. in the process, many enterprises have expressed the wish to introduce employee share - holding plans, which lie in the heart of the stake - holder concept of corporate governance. the reason why enterprises bring forth employee share - holding plan is that successful experiences of international businesses have shown the advantages of right incentives. many international companies, especially high - tech companies, have adopted employee share - holding plans. other non - high - tech companies, such as the united airlines, have also adopted such plans. there are three major underlying reasons. first, the plan can promote employees ’ enthusiasm for work ; second, it encourages employees to be involved in management of their companies ; and it also gives incentives to employees to be vigilant and keen on compliance and preventing frauds and illegal activities. in recent years, progress on establishing good corporate governance has not been smooth as we have neither had a clear vision on how to proceed nor thoroughly reviewed past mistakes. so far there is no employee shareholding plan in place though some companies have made their proposals. the reform is still going forward. corporate governance is the core of shareholding reform. in the reform of financial enterprises, corporate governance is the most emphasized by the state - leaders. the concept of corporate governance is very clear and has

considered in some important decisions. it was especially emphasized that stakeholders should be involved in the insolvency process. fourth, the stakeholders should have access to necessary information on managing the company. the oecd again revised the five principles in 2004. in this revision, the protection of stakeholders and whistle blowers is emphasized. it, to a larger extent, stresses the rights of employees and creditors. there are three main aspects. first, it clearly states to establish a mechanism that enhances the participation of employees. stakeholders, including individual employees and their representatives, shall be able to freely express their views to the board with respect to any illegal or immoral activities in the company. employees ’ views and their rights to express the views shall be respected and protected. it shall be ensured that information can flow safely and confidentially to the board. second, corporate governance shall ensure the enhanced participation of employees, so that the employees ’ special skills can be put to use in the company, benefiting the company directly or indirectly. the examples of employees ’ participation include increasing representatives of employees in the board, adopting the plan of employee stocks holding and establishing a profit sharing mechanism such as pension contribution. for instance, pension contributions can be pooled into an independent fund and the fund manager shall be independent from the company ’ s management in terms of business operation. third, it stresses the important role of creditors in corporate governance and external supervision. it also states that effective and efficient liquidation framework and credit rights enforcement mechanism are important supplement to effective corporate governance, ensuring effective protection for the rights of the shareholders. the importance of employees and creditors is further stressed in the new version. china wishes to learn from international experiences and practices in the process of building a socialist market economy with chinese characteristics. it can be said from the point of view of a socialist market economy, china should do better in terms of employees ’ status and their involvement in managing companies. however, we do not have any established principles or framework related to stakeholders. we will learn by doing and reviewing experiences. why have we not done better compared with many traditional western economies in this aspect? it has to do with the mistakes in the past. for any country learning from the history and past experiences is a very important, though not an easy task, and one that is liable to misunderstanding. an example at hand is the americans ’ review of the great recession in 1929. the reviews generated different conclusions right after the recession and in the 30 ’ s and 40 ’ s