Executive search firm Heidrick & Struggles' latest study on corporate governance in China found there is room for growth.
Conducted with Fudan University in Shanghai, the study finds the obvious cultural emphasis on local networks, particularly with the government, and boards in China tend to be tightly knit communities built on business or personal connections. Among the companies studied, 72% of board members were sourced through referrals.
"The study also shows that local enterprises tend to resist the introduction of foreign directors to sit on their boards, even as China is increasingly part of the global economy. 48% of Chinese state-owned enterprises and private enterprises would not consider employing foreign directors. Only 26% will consider hiring foreign directors, amongst which, 69% expect to do so within three years," said Steve Mulljiner, Managing Partner, Heidrick & Struggles China.
Foreign invested enterprises have put the employment of Chinese directors into their agenda as part of their localization strategy. More than 71% of foreign invested enterprises are considering the employment of Chinese directors, among which 87% plan to realize this within three years. Only 30% of the foreign invested enterprises
interviewed do not intend to employ Chinese directors.
"The unwillingness to recruit foreign directors indicates that the internationalization level is low in Chinese enterprises," said Professor Lu Xiongwen, dean of the School of Management at Fudan. "Chinese enterprises either don't trust foreign directors or think it unnecessary to hire foreign talent. Some enterprises are afraid communication with foreign directors would be difficult due to cultural and language barriers."
