The Recruitment and Evaluation of Boards of Directors in China

The cultural and market differences existing in Asia-Pacific markets create challenges in developing and implementing appropriate corporate governance systems. In China, it is particularly challenging, given the ill-developed nature of markets and supporting infrastructure in its transitional economy (e.g., Hovey, 2005; Zhang, 2006; Chen, 2005; Voß and Xia, 2006; OECD, 2007; Barton and Huang, 2007). With the emergence of capital markets in China, the current boom in institutional investment and the increasing establishment of legal frameworks (Qu and Leung, 2006), the implementation of systems of corporate governance is having a significant impact on China’s own economic development and integration into global markets (Ewing, 2005). Although China’s economy has shown continuous growth over the last 30 years of transition, future growth should not be taken for granted; indeed, it has been known for countries and companies with weak corporate governance systems to suffer larger collapses when hit by adverse shocks (Johnson and Shleifer, 2004). Weaknesses associated with the supervisory board, the board of directors and external audit are the main reasons for the prevalence of fraud committed by top management (Yuan and Yuan, 2007). Many issues such as the selection and evaluation mechanisms of board of directors employed by corporations and the training and qualifications of board of directors have become even more important.