Chinese companies struggling with how to disclose the departure of top executives amid a nationwide crackdown on corruption are adopting the favored euphemism of US corporations: personal reasons.
On Saturday last week, China Minsheng Banking Corp (中國民生銀行) cited “personal reasons” for the resignation of its president as Chinese media outlets reported that he was under investigation by authorities.
A month earlier, developer Kaisa Group Holdings Ltd (佳兆業集團) said that its chairman was quitting for “health reasons,” triggering a default on one of its loans, local media outlets reported.
However, the company is being investigated for links to a former Shenzhen security official who is being probed for alleged corruption, two people familiar with the matter have said.
Chinese President Xi Jinping (習近平) is waging the broadest crackdown on corruption in the nation in decades, leaving publicly traded companies scrambling for precedents in what and how they should disclose.
More than 70 top executives at state-owned enterprises were busted last year, according to the People’s Daily, including some with listings in Hong Kong.
“Companies are seldom forthcoming about the reasons that a director or chief executive has quit,” David Webb, shareholder activist and founder of Webb-site.com, said in an interview. “It is quite comical because a whole group of them simultaneously or in quick succession resigns for the same reason.”
Minsheng said the resignation of its president would not affect the company’s operations. A Kaisa spokesman declined to comment.
Webb offers a handful of other examples from recent years: Samling Global Ltd’s (三林環球) company secretary left in 2011 for “personal reasons” that resulted in a 12-year prison sentence for fraud and money laundering. VST Holdings Ltd’s (偉仕控股) chairman left for “personal reasons” in 2012 that led to a six-month jail sentence for stock-price rigging.
In 2012, China Glass Holdings Ltd (中國玻璃控股) said an independent director quit due to “health conditions and other personal reasons,” which turned out to include a corruption charge relating to another company. He was acquitted last year.
This is not a new problem. In May 2007, the Hong Kong Stock Exchange and the Hong Kong Institute of Directors called on listed companies to be more forthcoming.
“Detainment by the police or other authorities,” does not qualify as personal, they said.
Just a month later, the Chinese state-owned oil refiner China Petroleum & Chemical Corp (中國石油化工), more commonly known as Sinopec, said that then-chairman of the board Chen Tonghai (陳同海) was leaving for “personal reasons.”
State media reported that he was being probed for corruption; he was later given a suspended death sentence for taking 196 million yuan (US$31.4 million at current exchange rates) in bribes.
In 2008, Gome Electrical Appliances Ltd (國美電器) — then China’s biggest electronics retailer — initially denied reports that billionaire founder Huang Guangyu (黃光裕) was under investigation by authorities.
Even after Beijing police officials confirmed that China’s richest man at the time was being investigated for “economic crimes,” a company spokesman insisted: “You should take information on the stock exchange as the correct information.”
Huang was sentenced to 14 years in prison in 2010 for bribery and insider trading.
Opaque resignations have “been a sore point for Hong Kong-listed issuers,” Michael Cheng (鄭孟揚) of the Hong Kong-based Asian Corporate Governance Association said in an e-mail. “This is certainly something that the Hong Kong regulators should take another good look at.”
In 2012, the Securities and Futures Commission of Hong Kong was given the power to levy civil sanctions for failure to disclose price-sensitive information in a timely manner. The commission declined further comment.
The situation is not always clear-cut, Cheng said, as corruption investigations are often done in secret or covered by statutory secrecy, as in the case of Hong Kong’s graft-busting agency, the Independent Commission Against Corruption.
Hong Kong’s overlap with China creates a potential loophole. If an investigation is happening in mainland China by Chinese authorities, Hong Kong executives and regulators may not have been notified — or even aware of what is going on.
Some firms are trapped in a catch-22, Cheng said, where they are forced to suspend trading because they cannot disclose confidential investigations.
“Without such disclosure the stock exchange does not allow them to resume trading,” Cheng said. “Hence, a stalemate.”
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