China Mobile is a majority state-owned telecommunications company that provides mobile voice and related services in Mainland China and Hong Kong. It is the world’s largest mobile operator by network scale and customer base. Given the ownership structure, our engagement has focused on improving the transparency of the board and ensuring that the views of minority shareholder rights are taken into consideration, especially on issues such as capital efficiency, director nominations and board composition.
A number of the company’s senior executives were jailed for life due to their involvement in bribery and corruption between 2011 and 2014. In total, the bribes and kickbacks amounted to $67 million.
What we did
We began engagement with China Mobile in 2012 following a number of serious bribery and corruption allegations concerning its senior executives. We encouraged the company to locate and rectify the apparent weaknesses in its policies and systems and pressed it to learn from individual cases to improve its internal controls and risk management. In addition, we explored the nomination process of its board directors, specifically how the nomination committee ensures adequate experience and skills of the independent directors to enable them to oversee all aspects of the company’s performance. We recommended it undertake an external, independent board evaluation and managed to gather the support of 13 other institutional investors with $2 trillion in assets to lead a collaborative engagement advocating best practice for the nomination and assessment of board directors. In relation to bribery and corruption, we sought evidence of a change in culture and staff behaviour, which we believed to be core to addressing the root causes of the problems. In addition, we encouraged improved disclosure on a range of environmental, social and governance (ESG) issues without setting specific objectives.
The company’s first independent director with IT expertise joined the board in 2013. In 2016, China Mobile conducted an external board evaluation. Equally positive, its ESG disclosure has improved significantly over the past few years – in its sustainability report, as well as on the company’s website. The company is the first Mainland Chinese company to attain Band A ranking in CDP’s climate change disclosure survey. It also published a policy and corresponding due diligence guide for responsible supply chain management in 2016. The company has made demonstrable efforts to tackle bribery and corruption by analysing all the corruption cases it had identified since 2011. To show its commitment to cultural change, it held educational seminars on the topic for its employees. These examples are publicly available and were reported on in local media. We also commended its open admission of the bribery issues identified, its demonstrable commitment to change and setting a positive example for other companies. The company verified all whistle-blowing reports and set up a coordination mechanism encompassing material verification, external investigation support and special case coordination. It also required the family of management staff to sign an anti-bribery and corruption pledge.
The improvements made by the company over the last two years are in line with the bribery and corruption assessment by the Central Commission for Discipline Inspection (CCDI), the central government’s special branch for compliance assessment. The CCDI’s 28-page report is available on the government's website, covering the issues identified to be at risk, the number of people penalised and the reasons for the penalties, down to the provincial level.
In May 2017, we spoke at the company’s AGM, calling for improvements to its capital allocation and efficiency, with clear guidance on the overall approach to the use of cash. We also requested that the company strengthen the board’s expertise in emerging areas crucial to telecommunications. We will continue to monitor improvements in board composition and effectiveness.
By using the links above you will be leaving the Hermes website. Hermes has no control over the content on third party websites.
Social: Bribery and Corruption
Governance: Composition and effectiveness of the board of directors