atans1

Shan Gao Huang-di Yuan (“The mountains are high and the emperor is far away”)

In China, Corporate governance on 16/01/2012 at 6:01 am

It was SGX managers that were keen on China listings in the late 1990s and early noughties. They got their mult—million bonuses, but minority shareholders in many S-Chips got the worms. Now SGX has all kind of rules to try to ensure good corporate governance. But as this shows, the mgt of a Chinese co listed on NASDAQ, doesn’t care a damned abt US laws, confirming the experience of investors here on the attitude of the management of S-Chips to S’pore laws and SGX’s rules.

If ChinaCast again loses in the Delaware courts, the question is, what will it do afterward? The Chinese company could simply refuse to honor the court’s order. It has no assets in the United States, so it could easily ignore any monetary fine. However, it is listed in the United States and is subject to S.E.C. supervision; such an act is likely to crater its stock price. The likelihood of such a response is low, but it appears that ChinaCast’s current management is going to fight this coup to the bitter end. Expect more maneuvering by all parties involved.

There is a wider lesson here. It is hard to know the real facts in this case given the murky nature and distance of the events, but whatever the truth is, investing in companies based in a foreign country is risky not only because the rule of law is weaker, but also because of cultural differences.

Foreign companies are not as familiar with United States practices and laws governing domestic corporations. They are sometimes more willing to push the envelope, either out of cultural inexperience or simple ignorance. ChinaCast itself appears to have been a bit behind the ball in getting good advice.

 Sigh. Taz the scandal, not PM and ministers earning millions. But SGX listing cos that are difficult for S’pore-based investors to monitor, and police.

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