Study On The Legal Problems Of The Participation In Corporation Governance Of Listed Companies By Institutional Investors

Corporation governance is always the core of the modern enterprise system, looking for a more rational and scientific model is the focus of our company system reform. The phenomenon of “the domination of one shareholder” is apparent in the listed companies in China, the problems of “insider control” and “substantial shareholders' abuse of rights” are especially serious. Obviously, not only can the participation of institutional investors in the corporation governance of listed companies supervise the major shareholders' management and control the abuse of rights of them, but also protect the investors and improve the corporation governance structure. Nevertheless, the current situation is not encouraging, and the imperfect external legal environment is a main factor restricting the institutional investors to play a role in the corporation governance. The protection of the institutional investors' rights to participate in corporation governance of listed company is conducive to achieve the targets of corporation governance. Meanwhile, the proper regulation on the behaviors of the institutional investors is beneficial to prevent the abuse of their rights. Overall, it's the problem we need to solve that, construct and perfect the rights and obligations system of the institutional investors participating in corporation governance.The paper will be divided into four parts expect introduction:Part 1: The legal basis for institutional investors to participate in corporation governance of listed companies. First, define the institutional investor and the corporate governance. Study the concepts of institutional investor in Western countries and domestic academia, to have a conclusion that institutional investors are financial institutions which use their own funds or raised funds to invest financial instruments. Second, introduce the theory of the participation in corporation governance of the listed companies by institutional investors, including the theoretical and practical basis. It is worth to pay attention to "double principal agent" theory which is put forward based on the different legal status of institutional investors. Institutional investors, as the shareholder, have the agency relationship with the company's operators. Agency relationship also exists between institutional investors and individual investors for the reason that the former usually raise funds from the latter. Therefore, to solve the "agency problem" and safeguard the balance of interests between the parties, have become an important target for the protection of institutional investors to participate in corporation governance of the listed companies. Finally, elaborate the practical basis of institutional investors' participation in corporation governance including the necessity, feasibility and effectiveness.Part 2: Comparative research on the law of the participation of the institutional investors in corporation governance of listed companies. Study the legislation and the practice of the institutional investors' participation in corporation governance of the listed companies on the base of the legislation and the practice of the United States, Germany and Japan, and sum up the experience which is worth learning. The legal ways of foreign institutional investors to participate in corporation governance including proxy solicitation, vote, shareholder proposal, litigation, etc. For the proxy solicitation, the United States establish a perfect proxy rules, and the legislation of Germany and Japan are simpler and have less restrictions. Analyze the fiduciary duties of institutional investors from two aspects, one is to the company and other shareholders when institutional investors become the controlling shareholder, including the duty of care and the duty of loyalty. The other is to the individual investors. Unlike the general provisions of Germany and Japan, the United States made special laws to regulate different types of institutional investors, and developed the duty of prudent investment, in addition to provide general obligations for the trustee in the trust law.Part 3: Introduction and evaluation of participation in corporation governance of listed companies by institutional investors in China. This part will begin with the introduction about the current situation of the participation of institutional investors in corporation governance of the listed companies. The main legal ways which always be used by institutional investors to participate in corporation governance contain: well-performing proxy solicitation, proposal system of shareholders, the exercise of the right to vote and the litigation system; The regulation of the obligation system of institutional investors' participation include: the fiduciary duty of the controlling shareholder and the trustee obligation of the trustee. Then, there will be a postmortem on the current legal obstacles which are faced with the institutional investors in their participation in the corporation governance in China — the faultiness in the legal ways and the absence of the regulation of the obligation, especially the unsystematic well-performing proxy solicitation system, imperfect proposal system of shareholders, the deficiency of the fiduciary duty of the controlling shareholder and the incomplete trustee obligation of the trustee.Part 4: Suggestions. Give some advice to overcome the legal obstacles for the institutional investors to participate in corporation governance of the listed companies, viewing the United States, Germany and Japan as a cautionary tale. On the one hand, improve the legal ways which are used by institutional investors to participate in corporation governance of the listed companies in China, including establishing a well-performing proxy solicitation system and perfecting the proposal system of shareholder. On the other hand, construct an obligation system of participation in corporation governance of the listed companies by institutional investors, such as establishing the major shareholder's fiduciary duty in the corporate law, perfecting the fiduciary duty of the institutional investors in the trust law, establishing the prudent investment obligations and the standard of the duty of care as well as perfecting the information disclosure system of institutional investors.