Shares of China Traditional Chinese Medicine Holdings plunged on Monday after an independent non-executive director resigned, accusing the company of governance shortcomings, including a lack of transparency and improper approval processes for director pay.
In an open letter to shareholders of China TCM, independent non-executive director Zhou Bajun said he would resign with effect on Monday owing to the company’s governance problems, reflecting a rare public spat over a board position at a listed Hong Kong company.
China TCM shares ended Monday’s session 5.9 per cent lower at HK$4.81, paring back a drop of as much as 7.6 per cent.
Zhou, who is also a veteran current affairs commentator in Hong Kong, alleged that the company failed to properly keep recordings and written minutes of board meetings after its Hong Kong-based external company secretary stopped attending the meetings.
Zhou also said the company had yet to convene a meeting involving its strategy committee, of which he is one of five director members, since it was formed five years ago.
China TCM is a sister company of state-backed Sinopharm Group, which is also listed in Hong Kong. Sinopharm Group is China’s largest distributor of pharmaceutical and health care products. Both China TCM and Sinopharm are units of China National Pharmaceutical Group.
Among listed companies, independent non-executive directors are members of the board but do not hold positions on the executive management team.
In a rebuttal filed to the Hong Kong stock exchange, China TCM said it has tape-recorded “the whole process of each board meeting” and kept meeting minutes to provide “a complete record”, as required under listing rules.
It said the reason management did not call for a strategy committee meeting is because none of the committee’s members had requested a meeting and the company has been implementing a “very clear” development strategy.
A spokesman for the Hong Kong stock exchange said formation of a strategy committee is not mandatory under listing rules.
Zhou also alleged that three executive directors and one senior manager of China TCM were given substantial salary increments without board approval, even though the remuneration committee – comprising four directors – was in favour of recommending that the board approve the motion.
China TCM said the pay rises were never implemented.
In Monday’s statement, China TCM said it will not renew Zhou’s directorship which expires on February 4.
The statement said the board wants to have independent directors with “more industry related background”.
In a follow-up rebuttal letter, Zhou said there were a number of discrepancies with the description of events in the filing by China TCM.