Corporate Governance and Disclosure Assignment - Citic Scandal

Corporate Governance and Disclosure Assignment: CITIC Scandal

CP’s Own Matters:

1. Although CP is a listed company with long history, its nature of being a family enterprise may cause unwieldiness. According to the company structure, all the important positions from the management board (Chairman, CEO, Executive Director, Senior Manager) are taken by members from the Yung’s family regardless of their actual ability to run the company. Under this circumstance, the company may become an unwieldy conglomerate as it cares more about maintaining family control rather than maximizing its profits under a streamlined structure. In addition, although the management board could be able to make decisions and implement policies as the family-based management board functions as a whole, it may make irrational decisions out of their family interest. If Mr. Li joined the company as an INED and an audit committee member, you may not be able to have enough opportunities to implement your strategies.

2. As a listed company, CP doesn’t have a transparent operation and a timely information disclosure system. According to the incidence in 2008, CP issued a profit warning six weeks after it became aware of the exposure arising from some leveraged foreign exchange contracts. It was not until the contract risks became too big that the management became aware of these contracts and their potential risks, which indicates the opaque operation in the company. Besides, the profit warning was released six weeks after CP was aware of the issue shows that its information disclosure system reacts way behind reality. Under this circumstance, it may be much harder for Mr. Li to collect timely and comprehensive information to evaluate the company as an INED and an audit committee member.

3. CP lacks an effective supervising system. From the profit warning incidence in 2008, foregoing statements showed