Case Details
Corporate Governance at Citic Pacific
Gorbierno Corporativo en Citic Pacific
On the evening of 20 October 2008, Citic Pacific, the Hong Kong arm of the CITIC Group, China's largest state-owned investment company, stunned the stock markets by announcing that it would lose as much as HK$15.5 billion (approximately US$2 billion). The company stated that these losses were due to foreign exchange exposures that it had been aware of for six weeks, but had failed to tell the investors about. In an apologetic statement to the public, Larry Yung Chi-kin, the chairman of Citic Pacific, acknowledged the losses and admitted that the contracts had not been properly authorised. Investors and analysts subsequently attacked Citic Pacific for its corporate governance and internal control practices. They expressed shock that the company would make such risky transactions and that it would delay the disclosure of these large potential losses for six weeks.
What does this incident say about Citic Pacific's internal risk management and its board of directors, particularly the independent directors? Has the company demonstrated effective corporate governance standards and mechanisms through alignment of its top-level managers' decisions with the interests of the shareholders?
Learning Objective:
This case highlights the principles of corporate governance and exposes students to how important it is for a company to maintain high corporate governance standards. It can also be used to showcase the repercussions and issues that besiege a company such as Citic Pacific, which did not abide by some of the best practices of corporate governance.