China's State-owned Commercial Banks Corporate Governance Research

Effective corporate governance is the corner stone for thehealthy and sustainable development of state-ownedcommercial banks. A sound corporate governance should bebased on the features of commercial banks to consciously andcontinually development scientific mechanism ofdecision-making, execution, supervision and incentives, so asto improve its effectiveness. The financial crisis provokesinternational reflection and reform on corporate governance.The sudden collapse of many financial institutions withhundred years of history in US and other developed countriesproves that a mature model does not exist. Even relativelysound corporate governance needs to be improved with thedevelopment of situation. There is no single model. This papertargets at the corporate governance of state-ownedcommercial banks in China, explores the external and internalfactors influencing their corporate governance and putsforward new philosophy of the essence of the corporategovernance of state-owned commercial banks in China.Focuses are given on the combination the theory andpractice, particularly the exploration and experience ofstate-owned commercial banks of China in establishing soundcorporate governance in the past few years after therestructuring, and targeted opinions and suggestions areprovided in the paper. There are eight chapters excluding theintroduction. The introduction is an overall guidance, mainly on thebackground, significance, research philosophy and method.Chapter One explains the connotation of corporategovernance. Focuses are given on the definition of connotationand function of corporate governance so as to clarify itsdefinition and features. The innovation lies in the separation ofinternal and external corporate governance. This chapter alsoincludes other representative theories of corporate governance,analysis on the differences of corporate governance fromcontrol and management, the relationship of corporategovernance with the sustainable development of the companyand future trends of corporate governance, etc.Chapter Two and Three explains the internal and externalcorporate governance structure of modern commercial banks.Focuses are given on the composition and function analysis ofthe internal and external corporate governance structure ofmodern commercial banks as a particular form of company.Besides the shareholders’ general meeting, board of directors,independent directors, board of supervisors and seniormanagement that are common in modern commercial banks,the state-owned commercial banks of China also have theparty committee with Chinese characteristics and congress ofrepresentatives of employees. This chapter also introducesseveral principles and features of international regulators onthe healthy corporate governance of commercial banks, andputs forward that no matter external or internal structure,corporate governance are with distinctive features of regions. Chapter Four firstly explains the specialty of corporategovernance of modern commercial banks as a particular formof company, then introduces the features of corporategovernance of commercial banks in US and UK, Germany andJapan, and Asian countries (mainly Singapore), includingexternal and internal structure and designing philosophy, andextracts content that could be leant from by commercial banks,particularly state-owned commercial banks, in China.Chapter Five and Six explains the history of developmentsof corporate governance of state-owned commercial banks inChina, the progress in internal and external governance andexisting problems, deeply analyses the internal and externalgovernance of state-owned commercial banks in China, andconcludes their intrinsic features, including some fundamentalfeatures and several relatively conspicuous contradictionsformed in the shareholding restructuring and improvingcorporate governance structure of state-owned commercialbanks.Chapter Seven and Eight puts forward suggestions andthoughts for how to improve the external and internalgovernance of state-owned commercial banks in China.Major views and conclusions1. From control to governance, there is an issue ofmatching responsibilities, rights and interests, or the commonissue of relationship between rights, interests andresponsibilities. The corporate governance requires peoplewith rights and interests be responsible and diligent, and provide support and guarantee to the long-term andsustainable development of the company while realizing thesupervision and balance. They should not do whatever theywant in order to execute their rights and interests and shouldconsider the relationship between supervision and incentives,etc. A sound corporate governance model aims to realize thedemocratic centralism promoted by the Party, involves both thejoint participation of stakeholders and relative centralism inmajor decision-makings, guarantees the healthy functioning ofthe system of rights, interests and responsibilities, and assuresthe company in the right developing track.2. The corporate governance system shall be an entity ofboth internal and external governance, which are inseparablyinterconnected and interactive. External governance iscomplementary to the internal governance and is in relativelypassive position, but it is the primary condition andfundamental mechanism of the legal person governance. Italso makes the company always under the pressure ofexternal evaluation and promotes self-discipline. Internalgovernance is based on the external governance and is theendogenous mechanism of the external governance. It is thecore of the corporate governance system and assures thehealthy operation and development of the company throughappropriate structure and mechanism to organize the activitiesof different sections of interests within the corporategovernance.3. With the growing modern company, defects of simple shareholder governance gradually emerge. At the same time,different requirements on the social responsibilities ofcompanies are increasingly emphasized and the position ofstakeholders is attracting more and more attention. The jointparticipation of stakeholders in governance is the inevitabletrend of corporate governance development. Internet andother emerging new forms of economy also make stakeholdersable to participate in the corporate more comprehensively.Government, banks, intermediaries, public and other externalstakeholders attach more attention to and actively participatein the governance of listing companies and become anecessary complement of market supervision and importantpart of external corporate governance.4. The internal corporate governance mechanism mainlyinvolves the distribution and balance of power among owners,board of directors, board of supervisors, senior managementand other stakeholders designated by the internalorganizational procedures. To be specific, articles ofassociation, rules and procedures of the board of directors,distribution of power of decision-making and other internalarrangement in regulations. As the extension andendogenous mechanism of the external governance, internalgovernance includes more common organs and has thespecial features of one-state governance.5. State-owned commercial banks have greater needs of asound environment for external governance. Improving thegovernance of state-owned commercial banks cannot be separated from improving the government public governanceand promoting the government reform. It aims to form a set ofgovernment structure and management system suitable for themarket trend. The effectiveness of such reform largelydepends on whether the government can exercise ownershipin an active and wise way. The government should play therole of a wise, responsible and active owner.6. The corporate governance of state-owned commercialbanks depends not only on the economic factors such asnational economic development, business model ofcommercial banks, development of market, but alsonon-economic factors such as political system, history, culture,customs, etc. It is with distinctive characteristics and does notfit in a single model that could be applicable anywhere.Different countries have different national conditions and socialcultures, so the issues in corporate governance are different,but all have something to improve. The improvement is along-term process in practice. State-owned commercial bankswere faced with very special environment and tasks at verybeginning and need to deal with some special contradictoryrelationships. They can neither obey the common principle ofmodern corporate governance, nor distract from the realconditions of China. Besides, they must try to transform thedifficulties into favorable factors, and form unique advantages7. The unprecedented financial crisis shows that differentcorporate governance models under different shareholdingstructures in the world have different features, advantages and disadvantages. The differences in the corporate governancemodels are due to different factors, and are confined to thecomprehensive influence of different politics, economies, laws,cultures and other environmental factors. There is no singlebenchmark of corporate governance model, or a fix model thatis not changing forever. As a special kind of institution,state-owned commercial banks should have a dynamic andconstantly improving process in corporate governance. Weshall deeply analyze the defects of our internal and externalgovernance and learn from the expertise and successfulpractice of companies at home and abroad, explore the rulesfor corporate governance of state-owned commercial banks,promote a framework of corporate governance with scientificdecision-making, effective supervision and strong executionfor the state-owned commercial banks and provide powerfulguarantee for the scientific development of state-ownedcommercial banks.Innovations and contributionsFirstly, previous studies on corporate governance tend tomainly focus on the models of corporate governance, butseldom proceed with the internal and external factorsinfluencing the corporate governance. This paper, on the basisof recognizing the essential implication of companies, startsfrom the analysis on the internal and external corporategovernance and integrates the politics, laws, humanities,philosophies, behaviors and internal governance structure thathave impact on corporate governance, so as to make the study on corporate governance more thoughtful and scientific.Secondly, the academic world focuses more on theinternal framework of corporate governance, but often neglectsthe external environment. This paper holds that corporategovernance is an integration of external and internalgovernance and over-weights on either side could causedefects in the study of corporate governance.Thirdly, starting from the external corporate governance,this paper explores the external factors faced by thestate-owned commercial banks. In the governance structure ofstate-owned companies, all of the state-owned capitalinvestors system, the choices in the controlling stakes andrelevant laws and regulations need to be studied and improvedin accordance with the changing in the restructure anddevelopment of state-owned commercial banks.Fourthly, starting from the experiences in practice, thispaper deeply analyses the internal governance structure ofstate-owned commercial banks, including strengthening thedecision-making of board of directors, enhancing thesupervision of board of supervisors and playing the role of theinternal governance with Chinese characteristics.Last but not least, targeting at issues in the real world ofcorporate governance of state-owned commercial banks, thispaper explores how to improve corporate governance andpromote the effective realization of corporate governancefunctions, and puts forward targeting suggestions that couldhelp and guide the work in practice. LimitationsCorporate governance needs constantly improvement withthe development of situations. Due to lack of systemicresearch in relevant knowledge and limited experience of theauthor, this paper may have systematic insufficiencies or lessclear opinions. Particularly, studies on the establishment ofpolitical and legal system in favorable of corporate governanceand the behavior model of the economic man as the main bodyof corporate governance require deeper thoughts and researchinto fields of political and legal system, etc. Some opinions andsuggestions of the author are yet to be supported by theoryand practice. In the current system, how to put into full play ofthe balance function of internal supervision needs to be furtherstudied in combination with practice. The author is committedto continually explore and improve in the scientific andpractical spirit in future work and study.