The effectiveness of non‐executive directors in Chinese state‐owned enterprises

Abstract

Purpose

The primary aim of this paper is to examine whether boards of directors with independent members function as effective corporate governance mechanisms in Chinese State‐Owned Enterprises (SOEs), by analysing four characteristics of non‐executive directors (NEDs) that impact on their effectiveness, namely their degree of independence, information, incentive, and competence.

Design/methodology/approach

Being exploratory in nature, the research uses qualitative methods for data collection. It is based on an interpretivist perspective of social sciences, analysing and explaining the factors that influence the effectiveness of NEDs.

Findings

The findings indicate that the NED system is weak in China as a result of the concentrated ownership structure, unique business culture, intervention of controlling shareholders and the lack of understanding of the benefits brought by NEDs.

Research limitations/implications

The paper examines the salient features of and challenges to the system of NEDs of SOEs in present‐day China. It provides an understanding of how the various perceptions of the board, gathered from in‐depth interviews of corporate directors, leads to new interpretations of board effectiveness. The research, however, is limited owing to a relatively small sample size and the sensitive nature of the information collected.

Originality/value

The study aims to fill gaps in the literature and contribute to it by assessing the “real” views and perceptions of NEDs in China in an institutional environment significantly different from that of the USA, the UK and other western economies.

Citation

Kakabadse, N.K., Yang, H. and Sanders, R. (2010), "The effectiveness of non‐executive directors in Chinese state‐owned enterprises", Management Decision, Vol. 48 No. 7, pp. 1063-1079. https://doi.org/10.1108/00251741011068770