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The purpose of this essay is: to briefly describe and evaluate the laws and regulations, to assess the practice in the publicly listed companies of China, and to seek to bridge the gap of the laws and the practice.
2.The Definition of Corporate Governance
As to the definition, different people have different views. One of the opinions states that corporate governance is a set of rules that define the relationships between shareholders, managers, creditors the government and other stakeholders and a set of mechanisms that help directly and indirectly to enforce these rules .I appreciate the definition for two-fold reasons. First, it reflects the trend of corporate governance to care for stakeholder` benefit rather than concentrate on that of the owners`(shareholders`). It concerns the indivisible relationship between corporation and society and its inescapable social responsibility. Secondly, it refers to the forms of corporate governance: the static rules and movable mechanisms. That is to say corporate governance should not float on papers but operate in practice.
In my opinion, some supplement should be made to the definition in that it fails to point out some key points:
(i) Essence The essence of corporate governance is the mechanisms of balance of power within the corporate and among shareholders, board of directors, supervisory board and management.
(ii) Base Corporate governance is based on the ownership structure of a corporate and the trust –agency relationship.
(iii) Aim the aim of corporate governance is to reduce the cost of the proxy and maximize the profit for the stakeholders, mainly for the owners;
(iv) Approaches corporate governance seeks to use restraint and encouragement and other market-oriented mechanisms including inside governance and outside governance as vehicles for its purpose;
(v)Spirit Corporate governance embodies as a series of arrangements but it pursues to form a voluntary system of self-discipline. Just as the following words of Arthur Lea, the former chairman of The Securities Regulation Commission “Corporate governance is a new promise and awareness of duties by all participators”.
As a summary, corporate governance is a kind of economic relationship of trust and agency, a set of rules and mechanisms of balance of power, a series of agreement between stakeholders and a kind of self -discipline culture of an enterprise .It is based on the separation of owners` rights and corporate (as a legal person)`s property rights. It aims at reducing the cost of proxy and maximizes the profit through restraint and encouragement and other market-oriented mechanisms inside and outside the corporation.
3.Laws and Regulations of Corporate Governance of Publicly Listed Companies
《Company Law of PRC》(hereafter referred to as company law)
This law became effective as of July 1,1994 and was amended on December 25,1999 by the People` s Congress. It mainly provides the organizational structure, division of functions and mutual balance relationship in the publicly listed companies. For example:
(i) Shareholders general meeting see article 102-111,112,119,126,143,148,126
(ii) Board of Directors see article 102,103,112,119,126,106
(iii) Management see article 102,103,112,119,126,143,148,106,126
(iv) Supervisory Board see article 102,103,112,143,148,106,126
(v) Other activities of listed companies such as issue and transfer of shares see chapter 4
《Securities Law of PRC 》(hereafter referred to as securities law)
This law entered into force as of July 1,1999,which mainly regulates the issue and trade of securities, takeover, the disclosure of information, the regulation of stock exchange and other securities market participants, regulatory oversight and legal liabilities.
Other laws and regulations
There are other laws to safeguard the economic order and influence corporate governance of publicly listed companies as following:《Commercial Bank Law of PRC》,《Audit and Certificated Accountant Law of PRC》,《Anti-unfair Competition Law of PRC》,《The Guideline of the Article Association of Publicly Listed Companies》(formulated by the Chinese securities regulatory commission),《The Opinions on Standardization of Joint Stock Limited Companies》and etc..
4.The Practice of Corporate Governance Publicly Listed Companies of PRC
The laws and regulations have offered basic mechanisms and rules of corporate governance for publicly listed companies of PRC. The legislators have drawn lesson from the experience of industrialized countries where corporate governance has evolved for many years. At least we can distinguish a power triangle from the provisions floating on papers. We can believe they will pave the way for the development of corporate governance in the future if they are enforced well. But we still can find some flaws and gaps in practice through comparing the two following diagrams.
Diagram 1(see annex 1)
Normal model of corporate governance the laws seek to build up
Diagram 2 (see annex 2)
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