Research On Corporate Goverance And Development Of Administrative Monopoly Enterprises In Tobacco Industry

In recent 20 years, the theory of corporate governance is the most prosperous direction in the financial research field of the western company. Whether in the basic theory of corporate governance or corporate governance mechanism, fruitful results have been achieved. The corporate governance for China being as a country with its economy in transition and at emerging market has become one of the hot topics of discussion in the past 10 years. The administrative monopoly enterprises in our country was left over by high centralization of national administrative power under old system and handed down from reform not fully done under the system of national ownership. Now, it is faced with the inefficient internal mechanisms and anti-monopoly external environment. In this paper, it is taken tobacco enterprise as an example and by using corporate governance theory, economic theory of monopoly control and through directional and qualitative analysis to the present situation of China national tobacco and by deep comparison, research has been done to three big foreign tobacco companies. The root and settlement for the low efficiency of governance in Chinese tobacco enterprise have been found out. For the tobacco enterprise in our country, it is necessary to combine with the present situation. On one side, it is necessary to strengthen the governance mechanism and establish the governance model of optimized corporation. On the other side, through the enhancement of enterprise competition and by strengthening market competition capability, it is necessary to march forward along the development road of monopolistic competition under the national control.In this paper, it reviews the present condition of research for not only the theory of administrative monopoly inside and outside China and but also the theory of corporate governance and analyzes the advantages and disadvantages of various schools of theories. It is acknowledged by the theory of economy that for an enterprise if it is operated under the competitive product market, and the demand of its capital is met from the capital market, the maximum of fortune for the owner of the enterprise and the maximum of interests for the customer should be realized. Therefore, an ideal model of corporate governance should eliminate a system cost arising from the conflicts between different interests trend. This paper describes a full research for the utilization of corporate governance theory in the enterprise reform of administrative monopoly and the optimization of enterprise governance mechanism of administrative monopoly. Some related concepts and characteristics about administrative monopoly enterprise are clearly defined and advantages and disadvantages of the shareholder governance model and the stakeholder governance model are analyzed. The model of Shareholders Governance puts shareholders' interests at the first place, seeking the maximized shareholders' wealth and puts the managers at the position of providing service for the shareholders. It believes the operational orientation of maximizing shareholders' value and it is a market-oriented model. The theory of joint governance by stakeholders is a challenge to the idea of Shareholder Primacy of which the goal is maximization of shareholder interests. Since principal-agent theory can't fundamentally solve the failure of corporate governance arising from asymmetric information, corporate governance is taken as a control and balance system that is formed through joint participation by the company and contracted party. It is so called as stakeholder common governance theory. The corporate governance structure formed under this theory has thoroughly changed the "unilateral control" model of governance. It emphasizes a model of wide participation and joint management by the stakeholders of one kind of interest. Theoretical analysis of these two governance models provides guidance of how to optimizing administrative monopoly corporate governance below.This paper studies the tobacco enterprises and analyses the corporate governance of China's tobacco enterprises in detail. Under the system of single state-owned property rights, it exists the phenomenon of no separation between the government and the enterprise. Though some companies emulate the foreign tobacco companies to build board of directors, general meeting of shareholders and board of supervisors, it didn't play an effective role. Meanwhile, there are problems such as the absence of state-owned shares owner, low efficiency of capital market, lack of constraints of agent cost, imperfect function of board of directors, poor incentive and restrictive mechanisms of managers, failure of supervision of clients.This paper analyses the governance mechanism, capital structure and organization structure as well as governance efficiency of three typical tobacco companies from USA, Europe and Japan. Comparison and analysis has been done further to the foreign and domestic tobacco companies. The American and British companies have built typical modern enterprise system and the corporate governance is normalized and higher corporate efficiency is gained. Japanese Tobacco Company has low market orientation because Japanese government owns half of its share. The efficiency of corporate governance is low because the government is involved in it. Chinese companies are monopolized by government and the share structure is single. The managers of these companies are administratively appointed. The corporate governance mechanism is not sound and the efficiency is low. Through comparison and analysis, it is concluded that no matter the market orientation of the enterprise or the extent of managers choosing the market, or the income of the managers, it is positively interrelated. Therefore, for the Chinese tobacco enterprise if it is intended to optimize its company's corporate governance mechanism and raise the control efficiency and the value of enterprises, tobacco market should be opened and private capital and foreign investment should be introduced. But not only that, it is still necessary to diversify the structure of stock rights, clarify property right and to carry out market monopolized competition under the control of the state. Based on that and according to the condition of China, the structure model of corporate governance of Chinese tobacco industry is designed through combining qualitative analysis with quantitative analysis and by adoption of the way to be proved.Through analysis to the interval effect of type "M" existed between the ownership proportion of number one big shareholder and the value of the enterprise or the control efficiency, it is concluded that our national tobacco industry is mainly situated at No.3 area i.e. a hundred percent control of the stock owned by the tobacco enterprise of our country is the cause of the failure in the corporate governance. It is not advantageous to the value increasing for the enterprise. Therefore, a structure model of legal representative control for Chinese Tobacco Company is proposed based on diversified ownership, which is an important factor in optimizing corporate governance. Different ownership types have different effects on the efficiency of corporate governance. Absolute centralized or scattered ownership structure is not suitable for Chinese tobacco companies. From current single ownership structure to appropriate decentralized, for Chinese tobacco company, it is advantageous to improve the governance efficiency. The company can introduce strategic investors and increase the share proportion for managers. To improve the governance efficiency of tobacco enterprise, the tobacco companies must rationalize the relationship between ownerships, establish modern enterprise system and improve their corporate governance structure. Establishing a modern ownership system is not only the inherent requirement for improving the basic economic system, but also an important basis for building a modern enterprise system. After straightening out the relationship of property right in the tobacco industry, it is conducive to achieving true separation for the function of government and company. To improve its corporate governance structure, first of all, the company should design the function of the general meeting of shareholders and give full play to it in corporate governance. Secondly, design board system through the introduction of independent directors and strengthen the role of secretary of the Board. Third, strengthen the supervisory function of the board of supervisors. Finally, select qualified managers from market. In considering the special situation of Chinese tobacco industry, an efficient corporate governance system should be designed by introducing fully mature experience and rules of western companies. Generally speaking, the governance structure reform of administrative monopoly companies should be improved by combining with manager's selection, manager incentive mechanism and external supervising mechanism as well as laws and regulations on the basis of capital structure and ownership diversity.Through analysis to the model of efficiency improvement of the monopolistic competition enterprise, governance model of Chinese tobacco companies under state control is proposed. In order to boost the overall operating efficiency and improve the governance efficiency, the rigid system of administrative monopoly must be broken and the market-oriented road under state control must be taken and only under this condition, it is possible to march forward towards the target of listed company. From the macro level, if it is to raise the efficiency, it is necessary to clarify the property right of the enterprise. Judging from the aspect of micro modern enterprise management, the efficiency improvement is mainly referred to upgrade managers' efficiency and optimize the allocation of resources for the enterprise. The model shows that the monopoly competition under state control can upgrade corporate governance efficiency, enhance the administrative efficiency of the managers and optimize the allocation of resources in the monopolistic competition. If the capital is market-oriented, it can optimize the governance efficiency. The model focuses on the core of governance efficiency and maximized value of enterprise and takes the legitimate rights and interests of all shareholders and other stakeholders into consideration. Tobacco corporate governance model in our country should be a combination of short-term interests with sustainable development of enterprises, flexible, evolutionary, orderly transition from administrative monopoly to a monopoly competition under government control.Through analysis to the model of manager's incentive and restraint, it is concluded that low governance efficiency at tobacco industry is resulted from low incentive and restraint to the managers. The managers in the tobacco enterprise are appointed by the government and not market oriented. The interests of the enterprise have no direct relation with personal interests of the managers. Meanwhile, since the tobacco market is solely under the national monopoly, there is no competition for the product at the market. The personal capability of the managers cannot be embodied. As to the American tobacco company, it has established a whole complete modern enterprise system with perfect market of managers. The managers are selected by the market. The market has a function of examining and distinguishing the managers so that it decreases the adverse selection and morality risk.The market-oriented development of tobacco companies is an inevitable trend. To cultivate actively the external corporate governance market and combine internal governance mechanism will enhance efficiency. Alternative hypotheses said that the function of the board and the function of taking over the market are alternative. If the capital market and manager market as well as the skill of taking over the market is weak, the functions of the board should be strengthened. Chinese Tobacco Company's board of directors is ineffective in function and the capital market and manager markets have not developed soundly. Thus, cause the corporate governance structure to be in difficulty to play an effective role. On one hand, we should strengthen the functions of the board of directors, on the other hand, invigorate corporate control market and meanwhile develop the manager's market. In this way, it will give pressure to the current directors and managers and the incompetent directors and managers can be replaced in time. In capital market, the paper shows that the capital market orientation is positively related to the corporate governance efficiency. On the selection of managerial level, it describes that the manager market orientation also has a positive correlation to the governance efficiency.This paper studied the tobacco company as an example of administrative monopoly company. It is provided with meaningful information for the further reformation of administrative monopoly company and offered with significant suggestions for the reformation of China economic system and the market economy operated under healthy condition.