Do Chinese corporations take their governance practices abroad? Evidence from Chinese mining subsidiaries in Australia

• Author: Warren Staples,Xueli Huang
• Published date: 01 July 2018
• DOI: http://doi.org/10.1002/tie.21918
• Date: 01 July 2018

EMERGING MARKET PERSPECTIVES: CHINA

Do Chinese corporations take their governance practices

abroad? Evidence from Chinese mining subsidiaries

in Australia

Xueli Huang | Warren Staples

School of Management, RMIT University,

Melbourne, Australia

Correspondence

Xueli Huang, 445 Swanston Street,

Melbourne, VIC 3000, Australia.

Email: charlie.huang@rmit.edu.au

Directors offirms are theorized to fulfil control, service and resource dependenceroles. However,

the ways in which directors’of Chinese MNCs govern their foreign subsidiaries, and perform

these roles remains unclear. Building on the institutional logics perspective, this study explores

the roles enacted by the boards of directors eight Chinese-controlled companies in Australia to

gain an appreciation of their governance practices. In depth semi-structured interviews with

insider and independent directors, consultants and market analysts were undertaken. A content

analysis of company annual reports and web sites complimented primary sources of data on

board functions. Findings reveal that control is the most dominant role played by these boards,

rather than service or resource dependence. It also appears that the dominant logics of Chinese

institutions influence the corporate governance of Chinese MNCs as theyinternationalize. These

findings extendour understanding of corporate governance practices in Chinaand abroad.

KEYWORDS

boards of directors; Chinese subsidiaries; corporate governance; outward foreign direct

investment (OFDI); state-owned enterprise

1|INTRODUCTION

China has recently emerged as an important source of global capital,

ranked as one of the five largest countries in the world consecutively

since 2009 in terms of outward foreign direct investment (FDI)

(United Nations Conference on Trade and Development [UNCTAD],

2015). Chinese MNCs had established nearly 30,000 subsidiaries in

foreign countries by the end of 2014 (Ministry of Commerce, 2015).

How Chinese multinational corporations (MNCs) govern their foreign

subsidiaries is a common concern for many host countries (UNCTAD,

2010). Given the importance of corporations within developed and

emerging economies, corporate governance has long been an impor-

tant topic, as it can have a substantial impact on economic and social

development (du Plessis, Hargovan, & Bagaric, 2011).

This article focuses on the roles of board of directors in Chinese-

controlled subsidiaries in foreign countries. Existing corporate govern-

ance literature (Johnson, Ellstrand, & Daily, 1996) suggests that boards

of directors in the Western, Anglo-Saxon corporate governance model

play three primary roles: control, service, and resource dependence.

Central to the Anglo-Saxon model and prevalent in the United King-

dom, the United States, Australia, and other Anglo settings (Hill, 2010;

Waring, 2008) is the unitary board composed of a majority of inde-

pendent nonexecutive directors appointed to represent shareholder

interests (Jeffers, 2005). The embedded normative goal of the corpo-

ration and hence its directors is to maximize the creation of share-

holder value (Donaldson, 2012; Lazonik & O’Sullivan, 2000). In this

context a key role of the board is to address principal-agent problems

(Jensen & Meckling, 1976) by aligning managers’interest with those of

shareholders. Young, Ahlstrom, Bruton, & Chan (2001) explored the

roles of boards of directors in overseas companies in East Asia (Hong

Kong and Taiwan), and found that while these boards are established

according to the formal mechanisms of the Western model, they func-

tion quite differently. Nevertheless, little research has been conducted

on the corporate governance in foreign subsidiaries in general (Du,

Deloof, & Jorissen, 2015), and in Chinese-controlled subsidiaries in

foreign countries in particular. Given the rapid growth of Chinese out-

ward FDI since 2008, it is important and urgent to establish a baseline

understanding of corporate governance in Chinese-controlled foreign

subsidiaries before further improvement and strengthening can be

made to their corporate governance practice.

Studying eight publicly listed Chinese-controlled subsidiaries

operating in Australia, we explore the key roles played by the board of

DOI: 10.1002/tie.21918

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