On The Balancing Of Interests In Corporate Governance

Corporate governance is defined as the instruction and the supervision of the corporate management, which is based on the separation of corporate powers, aiming at the continuous increase of the corporate value and the construction of the balancing mechanism between the shareholders and other inner stakeholders by setting the right, the obligation and the responsibility thereof. Corporate governance is carried out within the corporation, including the instruction of the board on the corporate management, which lies in the core of the corporate power; and the supervision on the corporate management under the instruction of the board, among which the supervision on the senior management such as directors and managers being the core of the corporate governance. Corporate governance is to guarantee the legal operation of the corporation, with its economic object of the continuous increase of the corporate value and institutional object of the balance between the shareholders and other stakeholders. Corporate governance is practiced in the operation of the corporation. The corporate governance structure, in a static sense, refers to the separation and the balance of corporate powers, upon which the corporate governance is based. Corporate governance, however, as a dynamic process, by setting the right, the obligation and the responsibility, enables the restoration of the imbalance of the corporate power possibly incurred in the corporate operation. Corporate governance is about the internal legal operation of the corporation, while the so-called external corporate governance, namely, the governance of the market on the corporation, is about the influence of the market conduct on the corporate governance, not the corporate governance itself.Corporation is a kind of business organization. To meet the incorporation requirement, equity capital and human capital are the two essential factors without which there would be no corporation. The shareholders, as the provider of the equity capital and the workers (including the managers and the employees), as the provider of the human capital, have a very close relationship with the corporation. This is the case because one the one hand, their interest is under the influence of the corporation performance; on the other hand, they become corporation members by virtue of the investment relationship or the long-term contractual relationship. A corporation has independent legal personality as well as its own legal interest. The interest of a corporation is the integration of the interest of each interest group within the corporation, which is different from both the interest of any individual group, and the aggregation thereof. The maximization of the corporation interest could be quantified as the maximization of the corporation profits, so that each group of the corporation would realize its interest. All kinds of interests, no matter it is decided or not, such as the investors'investment return or the income of the workers, the creditors and the suppliers, no matter it is economic or social, such as the national revenue or the social benefit of the employment in a community, lie on the realization of the corporation interest as well as the corporation profit and sustainable development. Therefore, rather than solely considering the maximization of the shareholders'interest or that of the other stakeholders'interest, it should take into account of the independent legal position and legal interest of a corporation, and the significance thereof to the other stakeholders'interest.Although the maximization of the corporation interest is the chief goal of the corporations, it also should be noted that the corporation interest, though being independent, can hardly come true if deviated from each individual group's interest. It is the joint function of all the interest group within the corporation that enables the realization of the corporation interest; meanwhile each interest group has its own specific interest. Thus, in pursuing the maximization of the corporation interest, the corporation should well balance the internal interest among different stakeholders so as to keep the harmony of the corporation, which serves as the base of the realization of the corporation interest. In this sense, the maximization of the corporation interest and the balance of the internal interest are interdependent to each other and supplement each other as well.Shareholders stand in the central position among all the stakeholders in the corporation. This is the case not only because they provide the material basis of the establishment of the corporation, but also they undertake the operating risks of the corporation. Their investment return is solely dependent on the corporation interest. In this sense, the maximization of the shareholder's interest could be interpreted as the maximization of the corporation interest and hence the balance of the interest in the corporate governance is actually to balance the different interests among shareholder and to balance the interest between the shareholders and other stakeholders within the corporation. To put it in detail, the balance of interest in the corporate governance includes the balance of the controlling shareholders and the minority shareholders, that of the state-owned shareholders and the non-state-owned shareholders, that of the shareholders and managers, and that of the shareholders and workers.Apart from the Introduction and the Conclusion, this thesis is divided into four parts. The Introduction part explores the origin of the corporate governance issue, makes a comprehensive review of the study and research status about the corporate governance both at home and abroad, and addresses the theoretical and practical significance of the corporate governance studies. The main part of the thesis includes four parts.Part I is the theoretical basis concerning the corporate governance and the balance of interest. First of all, the author offers the definition of corporate governance and then makes a further understanding by comparing another two relevant concepts, namely, corporate governance structure and external corporate governance. Secondly, the author introduces the two different corporate governance models in terms of the internal organic structure. Although differing from the appearance, both of the two models involve the instruction and supervision of the corporation management. Due to the difference of legal systems which rooted in different legal and cultural traditions, the difference of appearance would last for long. There is no perfect corporate governance model that serves all different countries in the world, while the best one should be the one in accordance with the national situation. At last, the author points out the economic object and social object of the corporate governance. Corporations have their own independent interest. The maximization of the corporation interest is the base enabling other stakeholders'interest to come true. With respect to the incorporation factors, the inner corporation interest groups include shareholders and workers (including managers and employees). The balance of interest among all the interest groups is of great importance as it provides the basis and guarantee of the realization of the corporation interest.Part II is about the balance of interest among shareholders in the corporate governance. The first topic is the balance of interest between the controlling shareholders and other shareholders. The Majority Principle empowers the controlling shareholders to control and influence the corporation. If the controlling shareholders abuse their control power, the interest of the corporation and other shareholders will be injured. To balance the interest of the controlling shareholders and other shareholders, on the one hand, is to prevent the controlling shareholders from abusing their control powers; on the other hand, is to protect the interest of the minority shareholders. The second topic is the balance of interest between the state-owned shareholders and the non-state-owned shareholders. The main conflict hereof lies in the interest orientation. The state-owned shareholders tend to fail to distinguish its public authority role from its private authority role. This problem should be solved by regulating the patterns of the state-owned shares. At last, the power balance with shareholder structure is the basis of good corporate governance. The construction of a balanced shareholder structure offers a good answer to solve the conflict among shareholders completely. A good balance of power among shareholders guarantees the balance of the corporate powers, which serves as the base of the corporate governance. Institutional investors and banks should play a more active role in the construction of the power balance with shareholder structure. Part III is about the balance of interest between the shareholders and the managers. This originated from the separation of the ownership and management. To reach a balance in this regard, on the one hand, shareholder's interest should be protected, such as entitling comprehensive shareholder's rights, providing various remedies for the shareholders whose interest were injured and putting limitations on the manager's duty and responsibility; on the other hand, the construction of the incentive mechanism for the manages should not be ignored and their legal rights should be well protected. A stock option incentive mechanism would coordinate the interest of the managers with that of the shareholders. The responsibility avoidance and limitation mechanism set a good balancing point between the manager's management and the risks.Part IV is about the balance of interest between the shareholders and the workers. First of all, the worker's position in the corporation is addressed. They are human capital providers and the members of the corporation, as well as the implementers and judges of the management decisions and therefore they shall participate in the corporate governance. Secondly, the author offers the theoretical support, based on the the point of view of the homogeny of the labor and capital, by applying the economic democracy theory and the specific investment theory to justify the worker's participation in the corporate governance. Two examples are picked, namely, the worker's shareholding and the access of the workers into the corporate management, and the codetermination mechanism in Germany in particular, to illustrate the possible ways for the workers to participate in the corporate governance. At last, the author analyzes the current situation of the worker's participation in the corporate governance in China and makes some suggestions.