Foreign Political Interference in the Governance of Listed Companies: A Market and Behavioral Analysis

Abstract

This Article examines how regulators and a company’s stakeholders can and should respond to external political interference from a foreign government. This Article argues that the interactions created by different stakeholders influence the market’s response to such interference. This Article uses the “Party building” political movement in China to illustrate how Chinese businesses listed in Hong Kong reacted to interference from the Chinese Communist Party (CCP). The Party building is the CCP’s attempt to strengthen its control of listed companies by: having CCP organization’s in a company (organizational interference), controlling management decisions (management interference), and human resources (human resources interference). The political campaign offers a rare chance to observe how corporate stakeholders respond to external political interference from another country. This Article shows that fewer than a third of the companies examined were early adopters of Party building provisions. This suggests that managers have not been willing to accept political interference, especially when their companies’ are registered outside of China. However, companies that have adopted “Party building” provisions in their corporate charters have generally accepted some organizational interference or managerial interference. Still, they have been less accommodating to more direct control over personnel or human resources decisions. Consequently, this Article argues that securities regulators, in an open market, should adopt a market-driven approach to counter foreign political interference that empowers shareholders by increasing transparency, instead of implementing drastic interventions, such as mandatory delisting.

Keywords: Chinese firms, Cross-listing, Party-building, Political interference, Foreign government

JEL Classification: K22, G38