Sinopec Corporation of China - Setting Standards in Corporate Governance

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Case Details:

Case Code : CGOV003
Case Length : 20 Pages
Period : 2002 - 2003
Pub Date : 2005
Teaching Note :Not Available
Organization : Sinopec
Corporation
Industry : Petroleum and Petrochemicals
Countries : China

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"In line with international practice, the China Petroleum & Chemical Corporation (Sinopec) has adopted a standard corporate governance framework, including a board of directors, a board of supervisors and executive managers."¹

- People's Daily Online.

"We shall continue to improve our competitiveness in the international arena, and shall endeavor to build the Company into an international integrated energy and petrochemical company with outstanding core business, quality assets, diversified equity structure, innovative technologies, professional management, prudent financial practice, and the ability to compete in the global market by year 2010."

- Chen Tonghai, Chairman, Sinopec in Interim Report, August 2003.

Winning Laurels in Corporate Governance

In February 2003, Asset² listed Sinopec Corporation³ (Sinopec) (also known as China Petroleum and Chemical Corporation) among the 'best corporate governance companies in China' for 2002. The winners were decided based on the votes of 145 global institutional investors, who owned assets to the tune of $185 billion in the Asia-Pacific region.

Sinopec also found a place in the March 2003 issue of CFO Asia,⁴ which published the list of companies that won the 'Best Asian Annual Report 2001' award. Sinopec was the only Chinese company that figured in the list. Sinopec's annual report was adjudged as 'highly transparent - most comprehensive in information disclosure.

The report provided in-depth information on financial matters, business review and prospects, stock prices, board of directors' report, investor relations, and corporate governance.

Sinopec always followed the International Financial Reporting Standards (IFRS) while preparing its financial reports (Refer Exhibit I). It was not just the above awards and recognitions. Over the years, Sinopec had bagged several awards and recognitions for its good corporate governance practices (Refer Exhibit II).

Analysts felt that the credit went to Sinopec's corporate structure that decentralized decision-making and delegated authority to the middle and lower level management (Refer Exhibit III). Sinopec's strategic business units handled all its business operations. The company followed international rules and regulations for its corporate governance practices.

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1] As quoted in the article titled "Sinopec's Affiliate in Limelight," posted on www.fpeng.peopledaily.com February 29, 2000.

2] Asset is a Hong-Kong-based monthly magazine providing ideas, opinions, and strategies to improve the performance of businesses.

3] Sinopec is a China-based public listed company, established in February 2000. It is China's largest producer and marketer of both wholesale and retail oil products (gasoline, diesel, jet fuel), No.1 supplier of major petrochemical products (intermediates, synthetic resin, synthetic fiber, synthetic rubber, fertilizer) and the 2nd largest oil producer. In 2003, Fortune listed Sinopec 70th in Global 500 with revenues of $44.50 billion.

4] CFO Asia is a financial magazine having a circulation base of nearly 23,000 across 11 markets in Asia and is widely read by Asia's top corporate financial executives. CFO Asia is written for CFOs, Finance Directors and top management at large and medium-sized Asian and multinational companies.