(A short version of this case is also available: IMD-1-0335 Industrial and Commercial Bank of China: The Governance Model.) In June 1999, ICBC – the largest commercial bank in China – was technically bankrupt, with a nonperforming loan ratio of 47.59%. But, thanks to the united efforts of the government, the management team and its employees, the bank rose from the ashes through a transformation in its governance structure. After the third quarter of 2007, ICBC had continued to be ranked as the largest bank in the world by market capitalization, customers’ deposits and profitability. This case was developed to record corporate governance reform at ICBC within the context of China’s banking reform. It describes the evolution of governance in China, the challenges faced by leaders at all levels, the choices made and the results of these hard decisions. The challenges and discussion are relevant to Western companies in terms of understanding the corporate governance structure adopted by large Chinese enterprises. The success of the bank and its unique governance structure bring much inspiration from East to West.
Participants can explore the different issues behind ICBC’s governance reform. At undergraduate level in a political economy program, students can discuss the strategies involved in transforming from a centrally planned economy to a free market economy and the systematic design required to make any reform work. In MBA programs, participants can discuss issues related to corporate restructuring, governance structure, IPOs, as well as competitive strategy. At executive and board level, participants can focus on the banking governance structure and the pros and cons of the ICBC system. By the end of the class discussion, participants should have gained an insight into working with large Chinese companies. They should be able to grasp the problems arising from conflicts of interest among shareholders, directors, supervisors, the management team, strategic investors, the communist party and regulators. They should also understand the inner workings of these stakeholders, in particular the incentives of each stakeholder group, which differ greatly from those in the West. Participants will realize how corporate governance could be managed differently and how complex it could become. The discussions offer participants the opportunity to reflect on governance practices in the West and borrow elements that could be useful.
Industrial and Commercial Bank of China, Finance and Insurance, Financial Services
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