ASSIGNMENT

1. Comment on the separation (or lack of) between the board, management and shareholders in a
company like China Sky, and how that can impact on a company’s corporate governance.

Separation of ownership and management in corporate governance involves placing the

management of the firm under the responsibility of professionals who are not its owners. Owners
of a company may include shareholders, directors, government entities, other corporations and
the initial founders. This separation allows skilled managers to conduct the complicated business
of running a large company. In a company, the Chief Executive Officer(CEO) holds the top
management position whose primary responsibilities include making major corporate decisions,
managing the overall operations and resources of a company, acting as the main point of
communication between the board and corporate operations and being the public face of the
company. In case of China Sky, the CEO HuangZhongXuan was also an executive director and
the majority shareholder of the company. When directors also act as company owners vendor
which supply service to company, it may result in conflict of interest which becomes a problem
for corporate governance. It might lead to the CEO acting in a manner that is not in the best
interests of the development of the company. It can inhibit his ability to take strategic decisions
for the company involving risk, investment as being the principle shareholder he would be more
interested in keeping his dividend and share buybacks high.

2. Given the interested person transactions between Mr. Lai and China Sky, comment on the
independence of the board of directors.

The potential benefits of an independent board are well known. Independent directors are usually
leaders with few reasons to be beholden to the CEO. Boards dominated by independent directors
are better able to oversee the CEO and protect the interests of shareholders and other
stakeholders. Increasing their number can foster better board performance by enhancing a
company’s access to external resources and connections. However, full board independence is
not without its costs. It has been seen that the quality of managerial oversight and strategic
advising by independent directors depends significantly on the quality and completeness of
information they receive. Senior executives other than the CEO often have unique insights into
different aspects of the company’s operations which independent directors lack. The personal
transactions between Mr. Lai and China Sky did not fall into the jurisdiction of other directors
and hence they also didn’t have enough authority to forbid this kind of violation. The interests of
Mr. Lai as the independent director of the company were illegal and not in the faith of the
positional responsibilities expected from him.
3. Comment on the multiple directorships held by independent director Mr. Er Kwong Wah.

Multiple directorship held by Er Kwong Wah, within as well as outside the company has risk
that he is not focused and could not consider possible risks that might impact the company. The
directors might become overextended if they serve on several boards at the same time which can
result in insufficient meeting attendance and limited monitoring ability. It is true that busy
directors are more experienced and better connected than single-firm directors, but also more
distracted. Given the fact that Mr. Er Kwong Wah served on more than 10 board committees, his
attention and dedication towards any single committee would be diluted in nature. The time
commitment to individual board duties will reduce, which may prove detrimental to the
functioning of these committees and the company as a whole.

4. Discuss whether the CEO and independent directors should be allowed to resign without any
replacement.

The resignation of CEO and independent directors should not be allowed without a replacement.
Given the responsible role that board members play, media, public, and investors watch board’s
actions and decisions closely to get some idea about firm’s performance and governance. In fact,
literature suggests that investment decisions of many investors especially the foreign institutional
investors are dependent upon board’s composition and leadership. In terms of board
composition, investors prefer more number of outside directors and preferably independent
directors on board of the firm. Also, the CEO is the key player of a company and takes strategic
decisions of the company. On the basis of this fact, we can say that the resignation of
independent board members and CEO could impact performance and governance of the firms. It
would leave the organization vulnerable and unstable. In the event that a director has to resign,
there should be a notice period of a minimum amount of time as is deemed fit by the board
committee to allow such an action. This would give the remaining members ample time to take
restorative measures and will also save the organization from embarrassment.

5. Comment on SGX’s moves in response to China Sky’s non-compliance with SGX’s request to
appoint a Special Auditor. What else can SGX do to issuers that refuse to comply with its
directives?

After China Sky failed to the directives of SGX, the authorities reprimanded the Company and
its board of directors for continuously failing to heed to its rules and regulations. The SGX also
refused to lift suspension off the trading practices of China Sky. This move of SGX was very apt,
given the situation of non-cooperation that existed. The constant refusal of SGX’s requests to
appoint a special auditor by China Sky was clearly not in the interest of mutual cooperation that
was expected of it. It interfered with the proceedings of SGX. The issuers who refuse to comply
with SGX directives should be punished depending on the severity of their actions either by
complete suspension of their share trading as was done with China Sky or allowing restricted
trading of shares under SGX’s supervision.

6. For foreign companies such as China Sky, are existing rules adequate in ensuring good
governance? What else, if any, can be done to improve corporate governance of foreign
companies?

Following steps can be taken to improve Corporategovernance in foreign companies:

1. Additional board of directors to 9-11 as per otherlisting company.

2. Increase diversity in board of directors.
3. Annually evaluate board performance .
4. Appoint independent auditors regularly to check company business.
5. Appoint competent directors and assign duties accordingly.