Banking & Finance

Sasac’s not on board

Gree’s shareholders offer a rare snub to government

China’s coolest company?

Yale University is consistently ranked as one of the best schools in the US. It is also extremely selective, with an acceptance rate of just 6.8% this year, as reported by the New York Times in March.

Not surprisingly, it turns out that the university’s investment arm – the Yale Endowment, with $19.4 billion of assets under management at the end of the last fiscal year – is also picky when it comes to managing its money.

Last month that led to a rare snubbing for Sasac, the state body that controls China’s state-owned enterprises.

Yale is one of the big shareholders at Gree Electric Appliances, China’s biggest manufacturer of air-conditioners (see WiC65). At the end of 2011, Gree had 37% of China’s inverter air conditioner market (a type that provide a continuous temperature, as opposed to either blasting homeowners into the Artic or falling silent after being switched off).

At 35 million units, Gree was seven million units ahead of its nearest rival, Midea.

Nonetheless, at a general meeting held in late May shareholders voted against the appointment of a new board member, reports the Economic Observer.

The surprise was who was rejected: Zhou Shaoqiang, deputy director of Zhuhai Sasac – a municipal representative for Sasac ­in Guangdong province, just across the border from Macau.

Although shareholders knew Zhou’s background in reforming state-owned enterprises, there were doubts about his experience in manufacturing, as well as air conditioning in particular.

Instead, investors picked Feng Jiyong, a partner at the Beijing law firm Zhonglun, for a place on the board.

It was Yale who nominated Feng as a director, backed by the Penghua Fund.

Feng’s own case was bolstered by what was said to be his capital markets experience and business background.

Another likely subtext: shareholders wanted someone a little more likely to voice their own interests at board level?

The move is a further sign of Gree Electric’s journey away from its state-owned past – a process pioneered by Zhu Jianghong, the head of its parent company, Gree Group.

Zhu founded Gree Electric and battled himself with representatives at Zhuhai Sasac at parent company level. He also stands out because he was the first person to rise from Gree Electric to take the helm at the parent, occupying all three top jobs – chairman, president and Party secretary – after 2006 (he is set to retire, which is why the board seat became available).

One of Zhu’s priorities was to broaden the shareholder base, which was achieved by reducing Gree Group’s stake in Gree Electrric to 18.22% from a previous high of 60%. Now the company has a more diverse set of shareholders, including foreign investors such as Yale.

But the evolution of its shareholder base is unusual for a listed company in China. More typically minority shareholders and management teams will follow the will of the largest shareholder, often a state-owned entity. A consequence is that listed firms are run by officials who lack specialist industry knowledge.

The impact on investor behaviour is that their only plausible threat is to sell their shares. The problem is that means that they are less committed to the companies they invest in and do not stick around to try to improve corporate governance.

That might be changing, albeit glacially. In 2009, for example, motions were successfully opposed by shareholders at meetings of just eight Chinese companies. By 2011, this had risen to 15, reports Economy and Nation Weekly. Not much progress so far ­– but the pace might pick up if executives acted a little more like Gree Group’s Zhu.


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