China Securities Regulatory Commission ( CSRC ) has drafted a new version of the code of corporate governance for listed companies and last week published the draft with an eye to seeking public opinion on it.

The new code puts several new requirements on listed companies’ directors and senior management – ranging from their pre-onboarding eligibility to on-the-run diligence and post-service accountability – to achieve the optimum set-up of incentives that mitigates the conflicts of interest between management and shareholders.

In the remuneration and incentives section, the new code, for example, specifically states that the remunerations for directors and senior management should be comprised of basic, performance-based and long-term incentive pay, and that the performance-based pay should account for at least 50% of the total remuneration.

Compared with the existing code, the proposed code revision has more clear and granular details to improve the alignment of interests between senior management and shareholders, alleviating the “principal agent” problem in corporate governance.

The new code also regulates on the actions of the controlling shareholders and the actual controllers of the listed company, especially on matters linked to related-party transactions and horizontal competitions, which can potentially harm the interests of the listed company or its minority shareholders.

The code, for example, states that the controlling shareholders and actual controllers, directors and senior management should undertake joint responsibility if they are found to have colluded in harming the interests of the listed company or its minority shareholders, addressing the “principal-principal” problem, another important aspect in corporate governance.

In recent years, China’s regulators have been strengthening its supervision of its capital market, with several material changes on laws and regulations related to listed companies.

The prevailing code of corporate governance for listed companies was first published in 2002 and later revised in 2018. Earlier this year, the CSRC has completed revisions to the guidelines for the articles of association of listed companies and the rules for shareholders’ meetings of listed companies.