China's Message to Its Professors: Get Back to the ClassroomBloomberg News
State cracks down on academics serving as corporate directors
Three directors resigned from Huatai Securities last month
Hundreds of senior academics are quitting lucrative seats on the boards of Chinese companies, as a clampdown on top government officials holding paid corporate positions spreads into the education sector.
Until recently, university professors at state universities had thought themselves exempt from a 2013 ban on high-level government officials and Communist Party members holding corporate jobs, a restriction installed as part of the nation’s anti-corruption drive. That changed in November, when the education ministry threatened disciplinary action against higher-ranked academics who fail to register their corporate assignments.
Since then, at least a dozen publicly-traded Chinese companies have announced the resignations of academics who served as independent directors, raising concerns over how corporations will fill the gap created by their departure. In the space of almost four weeks, 274 academics had quit, the official China National Radio reported Dec. 22. At least two companies -- Huatai Securities Co. and Fawer Automotive Parts Co. -- cited the education crackdown for their recent director resignations.
“The ban could limit the supply of the best academics as independent directors,” said Gary Liu, deputy director of the CEIBS Lujiazui Institute of International Finance in Shanghai. Many of China’s “finest academics usually also hold leadership positions at the universities they serve,” he said.
The 2013 ban on holding corporate jobs created opportunities for many academics who moved in to fill vacancies caused by government officials leaving their private-sector directorships. About a third of the almost 9,000 independent directors hired by China’s publicly traded companies are either current or former professors from local universities, Legal Weekly reported Dec. 15, citing data from Wind, a Chinese financial data provider.
While the clampdown will probably cause a temporary director shortage, companies could turn to candidates from professions such as law and accounting to bridge the gap, according to Zhu Lijia, a Beijing-based professor at the Chinese Academy of Governance.
“The shortage of independent directors won’t last for long as there are many qualified replacements out there,” Zhu said. “They are the real professionals from whom a listed company without any hidden agenda should seek help.”
Companies could also hire junior academics who aren’t subject to the director ban as they don’t hold leadership positions at their universities, said Liu from CEIBS, which is a business school venture between Shanghai Jiao Tong University and the European Foundation for Management Development. Liu is an independent director for Centre Testing International Group Co., a Shenzhen-based company that provides testing and inspecting services for industrial and consumer products.
Huatai Securities had three academics resign last month, leaving the number of its independent directors below a third of total board members as required by China’s corporate law, the company said Dec. 21. Still, the brokerage has said that the departing directors will perform their duties until replacements are found.
The three directors resigned to comply with an education ministry requirement regarding the “inspection of the situation of government and party officials doing corporate part-time jobs,” Huatai said in an e-mailed statement to Bloomberg on Dec. 21.
Lv Changjiang, an accounting professor at Shanghai’s Fudan University, also resigned last month as an independent director from Huatai’s larger rival Haitong Securities Co. When contacted by Bloomberg, Lv said in an e-mail that his resignation was “indeed related to the education ministry notice.”
Most of China’s universities are state controlled. The ministry on Nov. 3 ordered deans, deputy deans and managers at the middle level and above to report their part-time jobs, saying that those who don’t do so in a timely or accurate fashion will be punished based on the severity of violations.
“From the evidence we have, there are still situations where people didn’t accurately report, or deliberately hid, their part-time jobs,” the ministry said in a statement that day. “For those who don’t enforce the registration, we will hold them accountable.”
The ministry didn’t respond to a call and a fax seeking comments on its crackdown. About a month later, it published another statement identifying cases where Communist Party rules had been violated. One involved two senior academics who each received more than 1 million yuan ($154,000) from their multiple corporate directorships. The extra pay was confiscated from both individuals, one of whom was dismissed, while the other was demoted.
The director fees offer an insight into why academics have accepted positions in the corporate world. One million yuan is more than eight times the average 121,681 yuan salary professors in Beijing were paid in 2010, according to a figures in a report posted on Xinhua News Agency’s website in September 2014.
Huatai paid two of its outgoing directors 120,000 yuan each in 2014, before taxes, according to the firm’s annual report. The brokerage’s chairman and president were each paid 4.24 million yuan before taxes that year, the report showed.
— With assistance by Jun Luo, and Aipeng Soo