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CORPORATE GOVERNANCE PRACTICE
The Board believes that a solid and sound framework of corporate governance is able to boost the integrity, accountability and transparency of the Group, which will ultimately maximize the Company's and the shareholders' value. Various checks and balances have been adopted by the Group. In 2009, an Enterprise Resource Planning accounting system has been adopted and applied to all business sectors of the Company, which allows the accounting and treasury functions of each business unit to be overseen by its central management office. We have engaged for the second year an independent consultant to conduct an evaluation of the Group's corporate governance to strengthen our corporate governance practices.
CORPORATE GOVERNANCE CODE COMPLIANCE
The Company has complied with the code provisions of the Code on Corporate Governance Practices (the "Code") as set out in Appendix 14 of the Listing Rules throughout the year ended 31 December 2009 with the exception of the following areas:
(1) Code Provision A.2.1
Code provision A.2.1 stipulates that the roles of chairman and chief executive officer should be separate and should not be performed by the same individual. Subsequent to the acquisition of the polysilicon and wafer businesses by the Company on 31 July 2009, Mr. Zhu Gong Shan (the Chairman and a Director of the Company) was appointed as the Chief Executive Officer. As Mr. Zhu has more than ten years' experience in power business and is the founder of our Xuzhou polysilicon production base, the Board considers that it is appropriate to elect Mr. Zhu as the Chief Executive Officer. In view of the strong support and assistance given to Mr. Zhu by the Company's experienced and dedicated management team and executives, the Board is of the opinion that Mr. Zhu is able to discharge his responsibilities to manage the Board as well as the Group's businesses. The Board will continuously monitor and make new appointments when appropriate.
(2) Code Provision E.1.2
Code Provision E.1.2 states that the chairman of the board should attend the annual general meeting. As Mr. Zhu Gong Shan, Chairman of the Board, was out of town and unable to attend the annual general meeting of the Company held on 25 May 2009, Mr. Tong Yee Ming (an executive Director and Chief Financial Officer of the Company) represented Mr. Zhu to chair the annual general meeting accordingly.
DIRECTORS' SECURITIES TRANSACTIONS
The Board has adopted the model code for securities transactions by Directors (the "Model Code") with terms no less exacting than the required standard as set out in Appendix 10 of the Listing Rules. Having made specific enquiry of all Directors, all Directors confirmed that they have complied with the required standard of dealings as set out in the Model Code throughout the year ended 31 December 2009.
BOARD OF DIRECTORS
As at 31 December 2009, the Board comprised fourteen Directors, including eight executive Directors, namely Mr. Zhu Gong Shan (Chairman and Chief Executive Officer), Mr. Sha Hong Qiu, Mr. Ji Jun, Mr. Shu Hua, Mr. Yu Bao Dong, Ms. Sun Wei, Mr. Tong Yee Ming and Mr. Zhu Yu Feng; two non-executive Directors, namely Mr. Chau Kwok Man, Cliff and Ms. Bai Xiao Qing; and four independent non-executive Directors, namely Mr. Yip Tai Him, Mr. Qian Zhi Xin, Ir. Dr. Raymond Ho Chung Tai and Mr. Xue Zhong Su. Biographical details of the Directors are set out under the section headed "Biographical details of Directors" of this report on pages 13 to 15.
Mr. Zhu Yu Feng is the son of Mr. Zhu Gong Shan. Save for the above and to the best knowledge of the Company, there is no financial, business, family or other material or relevant relationships among members of the Board. Mr. Zhu Gong Shan is the founder of a trust which owns approximately 32.4% issued share capital of the Company for himself and his family, including Mr. Zhu Yu Feng. Mr. Chau Kwok Man, Cliff and Ms. Bai Xiao Qing are employees of China Investment Corporation, which through its wholly-owned subsidiary (i.e. Chengdong Investment Corporation), controls approximately 20% issued share capital of the Company at 31 December 2009.
The Directors acknowledge their responsibility for preparing the financial statements for each financial year, which give a true and fair view of the state of affairs of the Group and of the profits and cash flows of the Group in accordance with the International Financial Reporting Standards, disclosure requirements of the Hong Kong Companies Ordinance and the Listing Rules. In preparing the financial statements for the year ended 31 December 2009, the Directors have selected suitable accounting policies and applied them consistently; made judgements and estimates which are reasonable and have prepared the financial statements on a going concern basis. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position, results of operations, cash flows and changes in equity of the Group. The Independent Auditor's Report relating to their reporting responsibilities on the financial statements of the Company is set out on pages 66 and 67 of this annual report.
The Board delegates certain responsibilities to various committees including the Strategic Planning Committee, Audit Committee and Remuneration Committee which are discussed below. Each of these committees has its respective terms of reference, the major terms of which are published on the Group's website (www.gcl-poly.com.hk).
The Board confines itself to setting strategic directions and business plan, exercising a number of reserved powers to oversee the operations and monitor the financial performance of the Group by determination of the annual budget, approving significant capital investment and to review the adequacy of the resources.
The independent non-executive Directors and non-executive Directors are appointed for a specific term of office for three years. All Directors, including the independent non-executive Directors and non-executive Directors are subject to retirement by rotation and re-election at annual general meetings in accordance with the Company's Articles of Association, provided that every Director shall be retired at least once every three years. In the annual general meeting held in May 2009, Messrs. Zhu Gong Shan, Sha Hong Qiu, Ji Jun, Yu Bao Dong, Tong Yee Ming and Yip Tai Him have been retired and re-elected as Directors.
Mr. Zhu Gong Shan is the Chairman and the Chief Executive Officer of the Company. The primary responsibilities of the Chairman are to provide leadership to the Board in setting corporate goals of the Company, overseeing the performance and effectiveness of the Board and taking a lead to ensure that the Board acts in the best interest of the Company and shareholders as a whole. The primary responsibilities of the Chief Executive Officer of the Company are to provide leadership for the management of the Company, taking a lead to implement the Company's business strategies and oversee the performance of the management in achieving corporate goals.
The independent non-executive Directors play an important role in corporate governance. They contribute to the Group by sharing their valuable expertise, in-depth knowledge and impartial judgement on issues discussed at the board and committee meetings which has become more effective.
The Company has received an annual written confirmation from each of the independent non-executive Directors of his independence. The Board considers that all the independent non-executive Directors are independent in accordance with the guidelines set out under the Listing Rules. All Directors have full and timely access to all relevant information, including reports from the Board Committees and briefing on significant legal, regulatory or accounting issues affecting the Group. A procedure has been approved by the Board to enable Directors to seek independent professional advice at the Company's expense in appropriate circumstances.
All Directors have been provided a Directors' Handbook which sets out the Company's business and a summary of all applicable laws, rules and regulations and key governance issues. The Director's handbook will be updated from time to time. A training regarding the rules and regulations applicable to directors of listed companies to observe during their services on Board will be provided by an independent legal firm to all newly appointed Directors. In April and September 2009, a training has been arranged for both Mr. Yip Tai Him and Mr. Zhu Yu Feng upon their respective appointments. Mr. Chau Kwok Man, Cliff and Ms. Bai Xiao Qing have also received similar training.
Where vacancies arise at the Board or whenever any member of the Board considers any qualified individual with relevant expertise and experience is likely to be invited to join the Board, the qualifications, experience and awards (if any) of the proposed candidate(s) will be put forward to the Board for its consideration and approval.
DIRECTORSHIP CHANGES IN 2009:
Mr. Heng Kwoo Seng resigned as an independent non-executive director, chairman of the audit committee and a member of the remuneration committee of the Company due to his retirement with effect from 31 March 2009.
Mr. Yip Tai Him was appointed as an independent non-executive director, chairman of the audit committee and a member of the remuneration committee of the Company with effect from 31 March 2009.
Mr. Tam Chor Kiu, an employee of Morgan Stanley group, resigned as a non-executive director of the Company with effect from 1 August 2009 as Morgan Stanley considered that it no longer required board representation.
Mr. Zhu Gong Shan, an executive Director and the Chairman of the Company, has been appointed as the Chief Executive Officer of the Company with effect from 1 September 2009.
Mr. Zhu Yu Feng, the son of Mr. Zhu Gong Shan, was appointed as an executive Director and Vice President of the Company with effect from 21 September 2009.
Mr. Chau Kwok Man, Cliff and Ms. Bai Xiao Qing were appointed as non-executive directors of the Company pursuant and subject to the terms of the subscription agreement entered into between the Company and CIC with effect from 23 December 2009.
At least four regular Board meetings will be held each year, with additional meetings to be held as and when required. All Directors are informed of the tentative dates of the regular Board meetings in January of the year. In 2009, there were altogether fifteen board meetings being convened.
In respect of regular meetings, at least 14 days' notice was given to all Directors to allow them an opportunity to include matters in the agenda and the board papers were sent to all Directors at least 3 days before the meeting. For all other meetings, reasonable notice was given.
Fifteen (15) Board meetings were held during the year and the average attendance rate is 82.2%. The attendance of each Director is shown in the table below:
| Members of the Board | Number of meetings attended |
|---|---|
| Executive Directors | |
| Mr. Zhu Gong Shan (Chairman and CEO) | 12 |
| Mr. Sha Hong Qiu | 10 |
| Mr. Ji Jun | 10 |
| Mr. Shu Hua | 12 |
| Mr. Yu Bao Dong | 15 |
| Ms. Sun Wei | 13 |
| Mr. Tong Yee Ming | 15 |
| Mr. Zhu Yu Feng (appointed on 21September 2009) | 3 |
| Non-Executive Directors | |
| Mr. Tam Chor Kiu (resigned on 1 August 2009) | 5 |
| Mr. Chau Kwok Man, Cliff (appointed on 23 December 2009) | 0 |
| Ms. Bai Xiao Qing (appointed on 23 December 2009) | 1 |
| Independent Non-executive Directors | |
| Mr. Heng Kwoo Seng (resigned on 31 March 2009) | 3 |
| Mr. Yip Tai Him (appointed on 31 March 2009) | 11 |
| Mr. Qian Zhi Xin | 15 |
| Ir. Dr. Raymond Ho Chung Tai | 8 |
| Mr. Xue Zhong Su | 14 |
COMMITTEES UNDER THE BOARD
Audit Committee
The Audit Committee comprises three independent non-executive Directors, namely Mr. Yip Tai Him, Mr. Qian Zhi Xin and Ir. Dr. Raymond Ho Chung Tai. Mr. Yip Tai Him, who is a practicing accountant in Hong Kong, and an associate member of both the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountant in the United Kingdom, possesses extensive accounting experience and serves as the chairman of the committee. The terms of reference for the Audit Committee has been updated and revised by the Board at the meeting held on 16 February 2009 to incorporate the latest changes made under the Listing Rules.
The primary responsibilities of the Audit Committee include:
- monitoring integrity of the financial statements;
- reviewing annual report and interim report;
- monitoring and assessing the internal control system (including the adequacy of resources, qualifications and experience of accounting and financial reporting staff) and risk management system;
- monitoring and assessing the performance of internal control function;
- monitoring the independence of an external auditor; and
- monitoring and assessing the performance of external auditor, proposing to the board the appointment or removal of external auditor, and facilitating the communication between external auditor and internal audit function.
Two Audit Committee meetings were held in 2009 and the attendance is set out in the following table:
| Members of Audit Committee | Number of meetings Attended |
|---|---|
| Mr. Heng Kwoo Seng (resigned on 31 March 2009) | 1 |
| Mr. Yip Tai Him – Chairman (appointed on 31 March 2009) | 1 |
| Mr. Qian Zhi Xin | 2 |
| Ir. Dr. Raymond Ho Chung Tai | 2 |
In addition to the aforesaid two meetings, the Audit Committee also held a meeting in March 2010. The following work was performed by the Audit Committee for and subsequent to the year ended 31 December 2009:
- reviewed and approved the audit fees;
- reviewed the 2009 auditor's report from Deloitte Touche Tohmatsu;
- reviewed the 2009 audited financial statements and the results announcement (including the unaudited financial statements and the results announcement for 1st half of 2009);
- reviewed the report on the continuing connected transactions for the financial year ended 31 December 2009;
- reviewed the corporate governance report prepared by Baker Tilly Hong Kong Business Services Ltd. and confirmed that the Group has an effective internal control system and the qualifications and experience of the Company's accounting staff and resource for financial reporting function are adequate; and
- reviewed various aspects of risk management.
For the year ended 31 December 2009, the total remuneration in respect of services provided by Deloitte Touche Tohmatsu is analysed as follows:
| Nature of service | Fees(HK$'000) |
|---|---|
| Audit services | |
| – 2009 Annual audit | 7,536 |
| Non-audit services | |
| – 2009 Interim review | 500 |
| – Reporting accountant | 2,150 |
| 10,186 | |
REMUNERATION COMMITTEE
The Remuneration Committee comprises three independent non-executive Directors, namely Ir. Dr. Raymond Ho Chung Tai, Mr. Yip Tai Him and Mr. Qian Zhi Xin. Ir. Dr. Raymond Ho Chung Tai is the chairman of the committee.
The primary responsibilities of the Remuneration Committee include:
- reviewing and approving performance-based remuneration evaluation system;
- determining and recommending the remuneration package of Directors and senior management to the board for approval; and
- reviewing, approving and advising the compensation arrangement to Directors and senior management
Two meetings were held by the Remuneration Committee for the year ended 31 December 2009 and the attendance of the meetings is set out in the following table:
| Members of Remuneration Committee | Number of Meetings Attended |
|---|---|
| Ir. Dr. Raymond Ho Chung Tai (Chairman) | 0 |
| Mr. Heng Kwoo Seng (resigned on 31 March 2009) | 1 |
| Mr. Yip Tai Him (appointed on 31 March 2009) | 1 |
| Mr. Qian Zhi Xin | 2 |
During the year, the Remuneration Committee had reviewed and considered the remuneration package and incentive scheme of the Directors, approved the amount of incentives paid to the Directors and approved share options granted to Directors and senior executives of the Group. During the review process, no individual Director is involved in decisions relating to his own remuneration. Details of remuneration payable to each Director of the Company have been set out in note 13 to the consolidated financial statements.
STRATEGIC PLANNING COMMITTEE
The Strategic Planning Committee comprises six members, three independent non-executive Directors and three executive Directors. The independent non-executive Directors include Ir. Dr. Raymond Ho Chung Tai (who is also the chairman of the committee), Mr. Qian Zhi Xin and Mr. Xue Zhong Su. The executive Directors who are also the committee members are Messrs. Zhu Gong Shan, Sha Hong Qiu and Ji Jun.
The primary responsibilities of the Strategic Planning Committee include:
- reviewing long-term strategic development plans;
- reviewing the annual performance of the Company and assessing implementation and progress of the long term strategic development plans;
- reviewing and recommending to the Board for opportunities of upgrading the facilities, expansion, mergers and acquisitions;
- reviewing and advising the regulations on electricity and power industry in the PRC;
- reviewing and recommending to the Board with regard to the political, social and economic development in the PRC affecting or potentially affecting the business activities of the Group; and
- reviewing and monitoring the relationship of the Company with its key strategic joint-venture partners or the relationship building with these partners.
Two meetings were held during the year and the attendance of the meetings is set out in the following table:
| Members of Strategic Planning Committee | Number of meetings attended |
|---|---|
| Ir. Dr. Raymond Ho Chung Tai (Chairman) | 1 |
| Mr. Zhu Gong Shan | 2 |
| Mr. Sha Hong Qiu | 2 |
| Mr. Xue Zhong Su | 2 |
| Mr. Qian Zhi Xin | 2 |
| Mr. Ji Jun | 2 |
During the two meetings, the Strategic Planning Committee had reviewed the market analysis, competitiveness of the Group and the five years' plan of the Group.
INTERNAL CONTROLS
The Directors are responsible for maintaining and reviewing the effectiveness of the Group's internal controls. Appropriate policies and control procedures have been designed and established to ensure that assets are safeguarded against improper use or disposal; relevant rules and regulations are adhered to and complied with; reliable financial and accounting records are maintained in accordance with relevant accounting standards and regulatory reporting requirements; and key risks that may impact on the Group's performance are appropriately identified and managed. Such procedures are designed to manage, rather than eliminate, the risk of failure to achieve business objectives. These procedures can only provide reasonable, and not absolute, assurance against material errors, losses and fraud. The Directors, through the Company's Audit Committee are kept regularly appraised of significant risks that may impact on the Group's performance.
In addition to the Internal Control Function established internally by the Group, an external independent audit firm, Baker Tilly Hong Kong Business Services Ltd. was appointed to appraise the internal control system of the Group. The internal control plan of the Group covers major activities and processes of the Group's business and service units.
During the year, Baker Tilly Hong Kong Business Services Ltd. had conducted site visits, walked through tests on various operation cycles, reviewed information system, assessed the adequacy of resources, qualifications and experience of staff as the Company's accounting and financial reporting function and discussed directly with the executives of certain power plants and the polysilicon plant in Xuzhou for the purpose of assessing the effectiveness of the internal control system of the Group. A report on the result of assessment and recommendations from Baker Tilly Hong Kong Business Services Ltd. was provided to the Audit Committee in September 2009 and March 2010. Based on the two reviews carried out by Baker Tilly Hong Kong Business Services Ltd. and the auditor's report from Deloitte Touche Tohmatsu, the Audit Committee and the Board concluded that there are no areas of concern that would have significant adverse impact on the Company's financial position or results of operations and considered that the internal control systems are adequate and effective.
INVESTOR RELATIONS AND COMMUNICATION WITH SHAREHOLDERS
The Board values every opportunity to communicate with the shareholders, analysts and institutional shareholders.
The Directors together with the Investor Relations team from time to time held/ participated in meetings, presentations and conference with the analysts, fund managers, institutional shareholders and media. Details of investor relations activities were further described under the section headed "Major Investor Relations Activities" of this report. From time to time, the Company updates the shareholders and the public by means of announcement. Full information contained in the circulars, interim report and annual report (which were available on the Company's website: www.gcl-poly.com.hk) were also sent to the shareholders to ensure they have sufficient information and understanding of the business as well as the performance of the Group. A total of two shareholders' meetings in addition to the annual general meeting were held during the year of 2009.
