23 October 2016
Huatai Securities cited the education ministry's crackdown for the recent resignations of its directors. Photo: Bloomberg
Huatai Securities cited the education ministry's crackdown for the recent resignations of its directors. Photo: Bloomberg

Get back to the classroom, China tells professors

Hundreds of senior university professors are quitting their seats on the boards of Chinese companies as the central government step up its clampdown on top government officials holding paid corporate positions.

Until recently, university professors at state universities had thought they were 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, Bloomberg reported.

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, the news agency said.

Within just four weeks, 274 academics had quit, the official China National Radio has reported.

At least two companies — Huatai Securities Co. Ltd. (06886.HK, 601688.CN) and Fawer Automotive Parts Co. Ltd. (000030.CN) — cited the education crackdown for the recent resignations of their directors.

“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, 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.

Most of China’s universities are state controlled. The education 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. “For those who don’t enforce the registration, we will hold them accountable.”

In December, the ministry 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 (US$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, Bloomberg said, citing the firm’s annual report.

The brokerage’s chairman and president were each paid 4.24 million yuan before taxes that year, according to the annual report.

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