Chinese companies struggling with how to disclose the departure of top executives amid a nationwide crackdown on corruption are adopting the favored euphemism of U.S. corporations: personal reasons.
On Saturday, China Minsheng Banking Corp. cited “personal reasons” for the resignation of its president as mainland media reported he was under investigation by authorities. A month earlier, developer Kaisa Group Holdings Ltd. said its chairman was quitting for “health reasons,” triggering a default on one of its loans. The company is being probed for links to a former Shenzhen security chief under investigation for alleged graft, two people familiar with the matter have said.
President Xi Jinping is waging the broadest crackdown on corruption 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 wouldn’t affect the company’s operations. A spokesman for Kaisa declined to comment.
Webb offers a handful of other examples from recent years: Samling Global Ltd.’s 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 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. said an independent director quit due to “health conditions and other personal reasons,” which turned out to be a corruption charge relating to another company. He was acquitted last year.
This isn’t 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,” doesn’t qualify as personal, they said.
Just a month later, the Chinese state-owned oil refiner China Petroleum & Chemical Corp. more commonly known as Sinopec, said then-chairman of the board Chen Tonghai was leaving for “personal reasons.” State media reports said he was being probed for corruption and he was later given a suspended death sentence for taking 196 million yuan ($31 million) in bribes.
In 2008, Gome Electrical Appliances Ltd. -- then China’s biggest electronics retailer -- initially denied reports that billionaire founder Huang Guangyu was under investigation by authorities. Even after Beijing police 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 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 got the power to levy civil sanctions for failure to disclose price-sensitive information in a timely manner. The commission declined further comment.
The situation isn’t always clear cut, Cheng said. 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’s going on.
Some firms are trapped in a Catch-22, Cheng said, where they’re forced to suspend trading because they can’t disclose confidential investigations.
“Without such disclosure the stock exchange does not allow them to resume trading,” Cheng said. “Hence a stalemate.”