Remote Management of Chinese Subsidiaries – Corporate Governance

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Since then, travel restrictions to China have severely impacted the governance of Chinese subsidiaries. Namely, the lack of C-suite management in China can increase compliance and operational issues. Without on-site management to control the business, head office may not be able to address issues and risks in a timely manner, so Chinese entities can quickly spiral out of control.

Additionally, the company’s management may have abruptly left China due to the recent epidemic measures to contain the novel COVID-19 variant Omicron. As a result, Horizons’ multidisciplinary team of legal and financial experts was called upon to conduct investigative audits that highlight current red flags and upcoming best practices. In the following, we highlight five aspects head office faces in corporate governance during epidemic measures.

Remote management

Companies may face the sudden departure of management during epidemic measures and the resulting consequences. Specifically, the company can establish interim remote governance and modify company policy to align with these leadership changes and establish new channels of communication and rapport between overseas management and employees. local. However, Human Resources should note that any changes to company policy should be consulted and agreed upon with employees and that notifications of changes should be formally announced, such as email distribution.

Company seals

In practice, the corporate governance of a Chinese entity is governed by its corporate seals and corporate seal policies. Once a company seal is affixed to a document, the company is legally bound and the contract is effective, while signatures are not enforceable under Chinese law. Strict management of corporate seals should be formulated and implemented to instruct proper use and protect the company corporate seals. Especially for businesses managed remotely due to the impact of epidemic measures, poor seal policies or improperly placed seals make businesses extremely vulnerable to mismanagement and risk.

Administrative changes

Similarly, when a new governing body is created for the company after the departure of the managing director, the executive director, directors or supervisors must be changed by the administrative procedures. Failure to change the governing body may result in certain penalties such as being placed on the Untrusted Entity List.

Compliance with the latest regulations

Last year, two main data laws were passed (the Data Security Act and the Personal Information Protection Act). Both laws significantly affect companies in the collection, processing and storage of data, and any cross-border data transfer. Therefore, companies must understand that these laws are not a copy of the General Data Protection Regulation and although it is easier to replicate related GDPR policies in the Chinese entity, it is crucial that management formulates a China-specific data policy based on data legislation in China.

Restore a strong governance structure

In the long term, companies may wish to replace remote management with local staff (for example, senior managers include the general manager, deputy general manager, financial manager and others designated by the company’s bylaws ). Companies should use this opportunity to review their Articles of Association (‘AoA’), ensure that the reporting line is clearly stated in the AoA and that the governance structure adheres to the AoA. Usually, the governance structure was not properly implemented in the creation of the company and previous senior managers may have neglected tasks without suffering the consequences. Therefore, before recruiting new senior managers for the Chinese entity, the scope of authority of each senior manager must be defined and governed within the AoA. In this way, the AoA can serve as a governance mechanism to clearly define senior management responsibilities and hold senior management accountable for any abuse, neglect, or violation of their responsibilities.

The surveys equip headquarters with informative intelligence to navigate their Chinese entities through the current economic and political landscape in China. Often, once the red flags highlighted in the survey report are resolved, the business can move forward and head towards profitable revenue.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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