| The introduction of the theory of separating ownership and management rights raises the curtain of “managerial revolution” in the world.The management of modern companies is gradually transferred from the owner to managers,who are engaged in the operation and management of companies.Executive directors,managers and other personnel who are responsible for business operations are the most important part in the company,assuming core roles in creating corporate values,playing a leading role in coordinating and allocating resources,and having increasing power in corporate governance.However,as the social and corporate division of labor deepens,China is at a transition period where the degree of marketization is to be improved and the concentration and expansion of management rights is still under way,the owner is just a figurehead when making decisions and managers are a source of problems like lacking market-oriented vision,blind investment decisions,distorted compensation assessment,excessive company-paid consumption and frequent corruption cases.Moreover,the evolution of power allocation in companies has strong tension,and the abuse of managers' power and failure of the supervision mechanism have become deep-rooted challenges.Therefore,it's urgent to enhance supervision on company managers.Building an effective supervisory mechanism is key to solving problems like inefficient corporate governance and abuse of power.China faces realistic difficulties in supervising managers,for example,the application of the two-tier supervisory system composed of the independent directors and the boarding of supervisors deviates far from the original intention,and the internal and external supervision mechanisms have failed.The causes of those difficulties include failing to regulate the concept,scope,powers and responsibilities of managers during legislation,mindset-related issues like intervention of administrative supervision and single-minded thinking of institutional supervision,and insufficient understanding of the complexity and integrity by traditional corporate governance theories.Those traditional theories and thinking models cannot deal with complex problems emerged with the development of human history.Thus,it is needed to understand the world in a more diverse and multi-dimensional way.The emergence of the Systematology offers a new research paradigm for traditional legal research.It becomes a new tool to meet the challenges of complexity in the world and is a new trend in legal research methods and thinking.This paper tries to study the supervisory mechanism of corporate governance from this new perspective to find a new way to supervise company managers.The paper re-examines problems existing in supervising managers with the theory system,studies those problems in a multi-faceted,three-dimensional way so that we better face the challenges of complexity and grasp the essence of supervision in integrity,change and relationship.The paper will study challenges in the supervision on managers in the context of corporate governance system and the external environment of companies from perspectives of the adaptability,hierarchy,and self-organization(or the three characteristics)of the supervisory system on managers,and the static structure and dynamic operation of the supervisory system on managers,and put forward corresponding measures.The paper follows the logical thoughts of “phenomenon-problems-questions(Introduction)-causes”.Following the destruction-before-construction method,it “destroys” traditional theories and models of thinking(Chapter 1),introduces new thinking patterns and methodology,clearly presents the direction and necessity of “construction”,further explores the theoretical framework of the theory system of the supervision on managers(Chapter 2 to Chapter 6),or namely the three characteristics,static structure and dynamic operation of the supervisory system.The logical approach used from Chapter 2 to Chapter 6 is “the principles and manifestation of the Systematology-application of the Systematology in the company supervisory mechanism-countermeasures to specific problems in supervision”.The last part is conclusion,covering research conclusions and the prospect for future research.It is pointed out that in the era of diversification,the system science will become a new thinking and new method to observe the company law,corporate governance and complexsocial relations in a highly complicated environment and that itwill become a new trend to study company law and corporate governance in a new era.The main part of the paper is composed of six chapters besides introduction and conclusion.Chapter 1 “The necessary of choosing the Systematology to supervise managers”.According to this chapter,managers' power keeps expanding and problems in supervising them become more prominent in modern corporate governance.In the process of closely examining the supervisory mechanism,we find that behind the failure of supervision,there are flaws in legislation such as ambiguous concept of mangers and their power,lack of restrictionson managers' power and deficient accountability mechanism.First we try to find solutions from traditional theories,but traditional principal-agent,trust and other corporate governance theories and the long-standinglegal theory of decentralization cannoteliminate those problems.There are various difficulties in the face of complex environment for modern corporate governance.The traditional principal-agent theory is based on the separation of the owner and managers.Itoriginates from the countries of common law system where the equity is decentralized,social division of labor is refined,and the basis of corporate governance is shareholders being the owner the company.While in China,many state-owned enterprises have the two-tier principal agent of “all people-the government-companies”,causing falsified shareholders and multi-level authorization and allowing the expansion of managers' power.Meanwhile,the culture of trust based on private properties rights in common law countries is absent in China,and managers' fiduciary duties regulated by the theory of trust in the Great Britain and U.S.are not fully and completely expressed in the “faithful,diligent” principle for the company's legislation.The separation of power(decentralization)theory is a classical one on power restriction and introduced from political philosophy into the company legal system.Thought China's Company Law establishes the 3-board mechanism composed of the board of shareholders,board of directors and board of supervisors and transplants the independent director system from the common law countries and the supervisory board system from civil law countries to form the two-tier supervisory model,it failed to avoid the dilemma of supervision failure.After reflection,we recognize that these traditional theories are the results of specific political system,economic system and cultural values.China fails to comprehend the complexity and integrity of the social environment behind those systems when transplanting the legal system of supervision.In terms of mindset,we have limitations like intervention of administrative supervision on companies and managers,single-minded thinking of institutional supervision and result-oriented static thinking,causing severe results such as the formality of supervisory system and mechanism,and managers' abuse of power.Therefore,it's urgent to find a new research approach that can effectively supervise managers.Against the background that the legal thinking evolves from the dualistic thinking to complex anddiversified thinking,legal research methods witnesses an approach where prescriptivism and pragmatismare transformed to the philosophy of law and the philosophy of science.Systematology is a branch of science that deals with the complexity and integrity of the world.The study of corporate governance supervision places the research object in the complex and integrated environment in which the company survives.Thus,the Systematology becomes a new research approach and new try in the paper.Chapter 2 “Hierarchy of the supervisory system”.Hierarchy,an important feature of a system,is a significant cognitive method in the face of complex systems.As a crucial and complex form of organization invented by human beings,the company hasthe structural feature of hierarchyand the resulting hierarchical order.The multi-dimensional hierarchy of the system is fully reflected in corporate governance.The hierarchy of the system is mainly representedin the company's complex internal and external relationships.Inside the company,the supervisory system has a competitive and synergic relationship with other functional systems like the recruitment system,decision-making system,motivation system and regulatory system.Outside the company,the system interacts with external markets such as the capital market,property rights market,product market and manager market.The hierarchy of the system structure is mainly manifested in the hierarchical order of the company structure,and the most typical application is conglomerate,a new form of organization gaining increasing popularity in China.In practice,the governance of conglomerates is manifested as the relationship between the conglomerate and its member companies,and between parent and subsidiary companies in the group.Within the group,as the parent company controls subsidiaries,conflicts between subsidiaries and the deviation of the group from subsidiaries emerge,resulting in the formalization of the independent legal personality of the subsidiary,the deviation of directors in subsidiaries from loyalty and honesty,over-intervention of the parent company in the operation and management of the subsidiary,failure of the supervision mechanism between the parent company and subsidiaries,impracticable 3-board of the subsidiary and their balancing functions.All these could leave no or insufficient supervision on managers' power in the group or the parent company.These problems are caused by legislative defects in the current Company law that fails to cover the entity of conglomerate and denies the legal personality of the group,and by managers' ideas of emphasizing on expansion and ignoring supervision during the reform of SOEs.All these show that while the legislation in China adheres to separate substantive laws for limit liability and the qualification of corporate juridical person,it is not flexible enough to solve practical problems brought by the new form of organization.The hierarchical feature of the system providesvital reference for solving the problems of supervising managers.When establishing the supervisory system,we must pay attention to the hierarchy of the system functions and the structure,ensure functional complementation within the company and functional support outside the company during the operation of the company,and build a hierarchical supervisory system for the conglomerate in particular.Besides,for the judicial application of legislative norms and overruling corporation qualification,we must improve understanding on the increasingly complex corporate entities,such as conglomerates,and other forms of organization and properlyhandle related issues.Chapter 3 “Adaptability of the supervisory system”.Adaptability is the second feature of the system.A complete system can ensure the smooth operation of all functions mainly thanks to its adaptability,which enables the system to adjust based on changes of the environment,improve its functions as the environment develops,and make the system more complicated and advanced.The supervisory system is under the influence of the corporate governance environment,political,economic and cultural environment of the country and the political institution,forming the supervisory system or making the system complex and diversified.Therefore,adaptability is essential to maintaining the lasting vitality of the system,which requires the system to have capabilities in four aspects: dynamic changing,learning and optimizing,repairing and adjusting,and classifying types.Study on the two most important but differentsupervision patterns in the world shows that the supervisory system of each country is the result of adapting to its specific political,economic,historical and cultural environment.In China,the failure of the two-tier supervisory model of independent directors and the board of supervisors under the three-board structure is caused by the mismatch of the supervisory system with corporate governance in China.The adaptabilities of supervision modesare diversified among SOEs and non-SOEs due to the different ownership.To apply the adaptability of the system in type-based corporate governance,State-owned Assets Supervision and Administration Commission(SASAC)shall transform its supervision method from decentralized and unified supervision to multi-level supervision and change the object of supervision from people,affairs and assets to capital.Non-SOEs also explore some measures such as improving the equity structure,adopting employee stock ownership,and enhancing the functions of independent directors during the mixed ownership reform.The adaptability of the system offers reference and suggestions for solving practical problems of supervising managers:(1)build the external environment for the supervisory system of the market-oriented reform;(2)closely followthe differences between China and the country of origin when adopting the supervisory system;(3)focus on the type-based construction of the company's supervisory system,conduct differentiated construction based on the form of organization and nature of companies;(4)promote the value shift of the company's legislative norms,transform the norms from mandatory ones to mainly voluntary ones to improve the adaptability of the supervisory system to complex corporate environment.Chapter 4 “Self-organization of the supervisory system”.Self-organization is the third feature of the system.This chapter is based on the theory of system self-organization and applies the dissipative structure theory of self-organization to the supervisory system.The self-organizing dissipative structure of the system is key to keeping the system developing and evolving.In the theory of dissipative structure of the system,openness,non-equilibrium,non-linear action and random fluctuation of the system are the prerequisite for forming a self-organizing system.In the supervisory system,this self-organizing dissipative structure is part of the corporate governance environment,which provides a unique perspective for us to study problems in the supervision mechanism of traditional corporate governance with new methods and standards.This chapter demonstrates four elements to ensure that the supervisory system can fit the dissipative structure theory of the Systematology:first,openness of the company's external environment keeps the supervisory system open to a certain degree;second,conflicts and friction between managers,and shareholders,creditors and employees maintain the exchange of resources and information among elements of the system and keep the system away from equilibrium;third,managers face complex relationships with stakeholders and supervising authorities in and outside the company,putting the system in a comprehensive and complex non-linear action;fourth,the evolution of corporate and supervisory mechanisms,which is under the influence of China's reform and opening up process,is undergoing dynamic changes and in line with the requirements of random fluctuation of the system.Thus,the supervisory system complies with the requirements of the dissipative structure.This chapter proposes measures to build a supervisory system that matches the dissipative structure.First,we should build an open supervisory system witha global perspective tocombine a supervisory mechanism at the micro-levelwiththe reform of mixed ownership at the macro-leveland keep in step with the reform of supervising authorities and reform of the structure of the board of directors in the world.Second,in the structural reform of mixed ownership,we should improve the company's equity structure,and realize the coronation and balance of resources and powers in mixed ownership enterprises.Third,we should build a vigorous supervisory system based on diversified property rights of the company,and encourage minority shareholders to supervise managers by improving their rights of recommendation,cumulative voting,network voting and other decision-making mechanisms.Last,we should adhere to the evolution law of the supervisory system and develop a market-oriented system that meets the company's needs at different development stages,transform the way of resource allocation and supervision from the one led by the government to the one guided by both the government and private sectors,from sole supervision by government to balanced supervision by diversified entities.Chapter 5 “Static structure of the supervisory system”.This chapter demonstrates the supervision on managers from the perspective of the static structure of the system.The structure of the system includes three factors: goal,elements and connection.The goal is the purposes expected to be achievedby the system and it determines the direction of the system operation.The elements are the basic units making the system and carriers of system functions.The connection is juncturesof the goal and elements of the system,which is the most important factor of the system to unify micro and macro items,and associate parts with the whole.All systems are composed of three parts: elements,connection and goal.These three parts are interrelated and form asystem.First,the goal of the supervisory systemis multi-level,and supervision is not the goal,we should reach the direct target of building an effective restriction mechanism to realize the overall goal of enhancing the company's competitiveness.Second,the supervisorysystem consists of three elements: subject,object and content.The subject is the organization or person responsible for supervising,includingsubjects of internal and external supervision.Internal supervision is the dedicated supervision by shareholders,independent directors and the board of supervisors and organizational supervision by staff congress,party committees and discipline inspectioncommissions.External supervision mainly includes supervision through information disclosure in external capital markets,enterprise property market supervision,professional manager market supervision,litigation supervision.The object of supervision is the manager,including the executive director,managers,senior managers and other people in charge of operation and management.The content refers to the scope of supervision,includingmanagers' recruitment,dismissal,authorization and scope of power.Thirdly,there still has a connection in the supervisory system.This carrier is reflected from the basic rights and obligations in laws,namely the rights ofsupervisorysubjectand obligations of supervisory object.In addition,theconnection between the subject's rights and the object's responsibilitiesis diverse and complex,for example,the connection between the information disclosure system,salary system and the size of the board and the supervisory system is the result of power game and the balance of democracy and efficiency.Efforts to improve the supervisory system must be based on the fundamental structure of the system:(1)enhance the hierarchyof the objects of the supervisory system,coordinate the relationship between direct or small targetss to realize the overall goal of enhancing the competitiveness;(2)clarify the targets of different subjects andidentify the functions of independent directors,specialized committee of the board of directors,the board of supervisors,the workers' congress and other subjects to enable them to play their expertise;(3)impose more restrictions on managers' power,and improve the authority system,system of representative rights and agent system;(4)enhance managers' legal liabilities,and channel more efforts in types of responsibilities and accountability standards.Chapter 6 “Dynamic operation of thesupervisory system”.This chapter places supervision on managers in the dynamic dimension of time and analyzes the effect of different supervisory modes through two manifestationmodes of system operation,orreinforcing circuit and regulating circuit,from the perspective of dynamic operation of the system.As a basic type of system circuits,reinforcing circuit is a motion mode sending regenerative feedback and is self-reinforcing.In the supervisorysystem,equity incentive and information disclosure are seen asa reinforcing circuit.To supervise managers based on the Systematology,we should give a full play to the reinforcing circuit,use independent directors or board of supervisors and equity incentive to enhance the operation of the circuit and supervise manages in a sustainable and stable way.On the other hand,we should facilitate the communication and exchange of information and energies necessary for the operation of every reinforcingcircuit,such as speeding up the construction of the information disclosure system to provide continuous energy to the system.The regulating circuit is another basic type of system circuits.It is a motion mode givingdegenerative feedback,and amends or controls operation in the system.In the supervisory system,the board meetingis a typical example of the regulating circuit.The principles of the regulatingcircuit also provides references for supervising managers:(1)in the supervisory system,more powers including part of the governance mechanism are mutually constrained,these regulating circuits are more reflected in the procedure mechanism of supervision,so we need to better guarantee the procedure mechanism;(2)the performance of self-correction and self-rectification of the regulating circuit requires a set of reaction mechanisms,so we need to pay more attention to judicial action and other reactionmechanisms to resolve disputes and guarantee the regulating circuit of the supervisory system.In addition,the supervisory system does not run in a single environment,the reinforcing circuit and regulating circuit are often connected,and a system has these two operation modes.For internal supervision,the supervision bythe board of directors and that by the board of supervisors are connected through reinforcing circuits like the information disclosure system and shareholder action system,and also connected by regulating circuits including the board of directors,the board of supervisors and other decision-making mechanisms.Studies on the connection between the reinforcing circuit and the regulating circuit and the influence of such connection on the system provide a new way for us to understand and identifyproblems in supervision and find solutions.This chapter tries to systematically handle the failure of China's two-tier supervision mode composed of independent directors and the board of supervisors by introducing the regulating circuit of comments by the board of shareholders to the reinforcing circuit of two-tier supervision. |
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