This Case is about CORPORATE GOVERNANCE, COSTS, ETHICS, EXECUTIVE COMPENSATION, HUMAN RESOURCE MANAGEMENT, OPERATIONS MANAGEMENT, SOCIAL ENTERPRISE
PUBLICATION DATE: June 18, 2009 PRODUCT #: HKU841-PDF-ENG
On the evening of 20th October 2008, Citic Pacific, the Hong Kong arm of the CITIC Group, China’s major state-owned investment corporation, stunned the stock markets by proclaiming that it would lose as much as HK$15.5 billion (approximately US$2 billion). In an repentful statement to the people, Larry Yung Chi-kin, the chairman of Citic Pacific, recognized the losses and affirmed the contracts had not been properly authorized. Analysts and investors later assaulted Citic Pacific for its corporate governance and internal control practices. They expressed shock that it would delay the disclosure of these big potential losses for six weeks and that the firm would make such high-risk trades. What does this event say about the internal risk management and its board of directors, especially the independent managers of Citic Pacific? Has the firm demonstrated mechanics and successful corporate governance standards through alignment of its top level managers’ decisions with the interests of the investors?