Vanke panky

WANG SHI (pictured) is not a man who gives up easily. The chairman of Vanke, one of China’s biggest property firms, cut his teeth in the People’s Liberation Army and climbed Everest at the age of 52. When bombers attacked the Boston marathon in 2013, Mr Wang stayed at the scene and posted dispatches on social media. CCTV, China’s official broadcaster, called him its “front-line correspondent”.

This steely temperament was again evident this week, as Mr Wang gained the upper hand in his battle against a corporate raider attempting to seize control of his listed company. Baoneng, a private Chinese conglomerate, fired the first salvo last year by raising its stake in Vanke to more than 24%. That made its holding bigger than the one held by China Resources, a state-owned enterprise which has long backed the firm’s leadership, and set the stage for a takeover bid.

Declaring Yao Zhenhua, Baoneng’s boss, an unwelcome barbarian, Mr Wang asked for trading in Vanke’s shares to be suspended on December 18th and tried to organise an alternative investor to outflank Baoneng. In March he unveiled a convoluted plan to acquire properties held by Shenzhen Metro, a government entity. In return, he planned to issue new shares and grant the state outfit a stake in his company that would be bigger than Baoneng’s. But China Resources, unhappy that its stake would also be diluted, opposed this plan.

Sensing weakness, Baoneng in late June demanded an extraordinary shareholder meeting to oust Mr Wang and his board. With China Resources no longer at his side, Mr Wang looked as if he might be toppled. But on July 3rd Vanke notified regulators that the firm’s board had officially rejected Baoneng’s demand. Baoneng responded on July 5th by purchasing more of Vanke’s shares, taking its holding to just below 25%.

Yan Yuejin of E-house, a property-research firm, warns that the public boardroom brawl was “such a joke” that it will prompt regulatory scrutiny. Whatever the outcome, the affair has revealed the sad state of corporate governance in China. Hostile takeovers are extremely rare on the mainland, especially of firms this large. (Vanke’s revenues last year were over $30 billion.) Most private-sector firms are controlled by a dominant shareholder or group, which makes it hard for raiders to seize control by purchasing shares openly.

But Vanke was unusually exposed to raiders. In 1988 Mr Wang took the decision not to keep a tight grip on Vanke, but rather to donate his shares to charity. In a speech in 2014 he professed his faith in good governance, arguing that he would rather win the trust of his board through his performance than control it through a dominant shareholding.

Alas, those sentiments were quickly forgotten when a hostile raider emerged. Chen Shimin of the China Europe International Business School in Shanghai sees “a lapse in corporate governance”. Instead of rejecting the bid from Baoneng out of hand and working stealthily to find a white knight, Vanke should have convened a board meeting immediately to discuss a potential takeover. Asked this week for comment, Vanke responded: “We are not in a position to comment on our own corporate governance.”

Vanke’s failings are more public than those of other Chinese companies, but they are not more egregious. Firms regularly flout rules about the independence of directors by, for example, packing boards with cronies of the chairman. Moreover, the rules and regulations about company behaviour are themselves often vague, and arbitrarily enforced. The Asian Corporate Governance Association, an independent body, rates China’s performance on such matters among the worst in Asia. If Mr Wang wants a task more challenging than climbing Everest, he should rally Chinese business leaders behind the cause of better corporate governance.