New China Life Insurance -- A Thousand Days of Struggle

At the end of 2009, the full-length drama surrounding shareholder rights for New China Life Insurance Co. Ltd. finally ended. On December 28, after long delays the insurer established a new board of directors. Then on January 14, New China Life Insurance Asset Management Co., the company in charge of New China Life's 180 billion yuan in assets, appointed a new management team. The era of the long-term absence of a board of directors, with management, shareholders and even regulators sharing governance responsibility, was finally over.

Four years ago, during his tenure as Chairman of New China Life, Guan Guoliang misappropriated company funds and disguised the holding company's operating exposure, prompting some shareholders to demand Guan's resignation, causing a stir in the entire insurance industry. A few months later, controversy surrounded the Guan's fate, dividing shareholders into two factions and leading to a stalemate. But by the middle of winter in 2006, Guan was removed from his post, a victory for the "anti-Guan faction" in the first of what would be a series of battles.

After ousting Guan, New China Life entered into a long period of both internal and external strife. In November 2007, because Guan was unable to return fully the funds he diverted, a judicial investigation was launched against him. At the same time, five of New China Life's problematic shareholder equity stakes were acquired by the China Insurance Protection Fund for 2.7 billion yuan.

In November 2008, Guan was charged in court with embezzlement and misappropriation, while the controversy surrounding the power struggle for control over New China Life had still not concluded. The past problems caused by Guan's actions had not been completely resolved, and the restructuring of the company's corporate governance system was almost at a standstill. For a long period of time various factions could not reach consensus on the establishment of a new board of directors or the appointment of a new management team. The company budget and salary allocations were not operating normally and financial statements could not be issued on time. Moreover, there was no way for the company to identify its assets and liabilities, and long-term insolvency issues seriously constrained business development, not to mention long-term planning and raising funds for a public listing.
   
Another year passed and under special approval from the State Council, the China Insurance Protection Fund transferred its 38.8 percent equity stake in New China Life to Central Huijin Investment Ltd., a move viewed as aiming to balance out power on all sides. But the arrival of Central Huijin hasn't been as smooth as some had hoped. After over nearly nine months of negotiations, in December 2009, Central Huijin finally agreed to purchase the equity stake in New China Life for a price of only four billion yuan. As a result, the need for a newly appointed board of directors was only recently put back on the agenda.

The chess game between shareholders, management and regulators is rooted in the company's lack of corporate governance. By taking a broad look at New China Life's turbulent history, in reality it was difficult for each side to reach a balance between standardizing business practices and adapting to the legal environment. Players in the game all either actively or passively went beyond their own authority.