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EACGD Conference, Tokyo. Corporate Governance in China: Some Experiences and Lessons. Dr. GUO Li 郭 靂 Law School Professor Peking University 北京大学 2012-07-06 [email protected] Will the Corporate Governance Converge?.

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corporate governance in china some experiences and lessons

EACGDConference, Tokyo

Corporate Governance in China:SomeExperiences and Lessons

Dr. GUO Li 郭 靂

Law School Professor

Peking University 北京大学

2012-07-06

[email protected]

will the corporate governance converge
Will the Corporate Governance Converge?
  • Henry Hansmann and Reinier Kraakman, The End of History for Corporate Law, 89 Geo. L.J. 439(2001).
  • The Manager-Oriented Model:1930-1960 U.S.
  • The Labor-Oriented Model: Germany
  • The State-Oriented Model: Japan
  • Stakeholder Models: Company Social Responsibilities?

The Shareholder-Oriented Model

corporate governance difference and convergence
Corporate Governance: Difference and Convergence
  • Chinese Corporate Governance Model (in the book)

Shareholder’s meeting

Board of Directors

Board of

supervisors

managers

the us corporate governance model
The US Corporate Governance Model
  • One Board

Shareholder’s meeting

Board of Directors

Committees(Audit,

Nominating, and compensation)

managers

german corporate governance model
German Corporate Governance Model
  • Two-tier Board

Shareholder’s meeting

(bank, state)

Board of supervisors

(codetermination)

Board of directors

managers

choose of the models
Choose of the Models
  • Ownership Structure
  • Dispersed Ownership Structure
    • Manager control
    • Earnings management (Enron, WorldCom)
    • Protection of minority shareholders
  • Concentrated Ownership Structure
    • Controlling shareholders
    • Appropriation of private benefits of control (Parmalat)
    • Concerns for creditors
china concentrated ownership controlling insiders m or bod
China: Concentrated Ownership + Controlling Insiders (M or BOD)

Controlling

Shareholder

Minority

Shareholders

Board of

Directors

Shareholder’s

Meeting

Board of

Supervisors

Manager

china s experience 1
China’s Experience 1:
  • Board of Supervisors监事会
  • To check the financial affairs of the company

To monitor the Board of Directors and Managers

To convene or propose the S/H Meeting

To get involved in the S/H derivative suit

……

  • Relationship between Board of Directors and Board of Supervisors
slide9

Chinese Corporate Governance (in practice)

Shareholder’s meeting

Board of Directors

Board of

supervisors

managers

china s experience 2 independent director
China’s Experience 2: Independent Director 独立董事
  • Problems of Corporate Governance in China:
  • State owned majority shares in many listed companies.
    • the representatives of state have not been monitored carefully (insider control)
  • Private companies: controlling shareholders exploit small shareholders (dominative shareholders)
  • Results for many listed companies: local governments /their representatives or private large controlling S/Hs take advantage of the small shareholders dispersed in the whole country, as well as the nationwide banks as the major creditors.
    • But, Market Won Gree 格力 (Electric Appliances) Board Bid (May 25th, 2012)
      • Mighty & Entrenched Management?
independent director in china
Independent Director in China
  • Statute of Independent Director is in the legislative process by state Council (required by CL Art.123).
  • Guidance Opinion on the Establishment of an Independent Director System in Listed Companies, by China Securities Regulatory Commission (2001, CSRC).
  • The end is to make independent directors become the “supervisor” on behalf of the CSRC?

-- Donald C. Clarke, The Independent Director in Chinese Corporate Governance, 31 Del. J. Corp. L. 125 (2006).

slide12

Chinese Corporate Governance (current)

Shareholder’s meeting

Board of Directors

(Independent D)

Board of

supervisors

(Independent S)

managers

independent directors in a dilemma
Capacity & Experience

Restraints

Information Asymmetry

Relationship

Incentives ?

Interest Group or Privilege?

Listed Com.:2314

ID position: 7595

ID: 5593; 1: 1.36

(end of 2011)

Obligation ↗

Liabilities ↗

Shortage of independent director candidates, especially for the small and risky listed companies on the ChiNext

Professors & Researchers (40%)

Lawyers & Accountants

Retired government officials

Independent Directorsin a dilemma
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