Case Study On The Implementation Failure Of St Kangde Composite Material Group's ESOP

The ESOP(employee stock ownership plan)originated in the United States.As an enterprise incentive system,the ESOP can not only coordinate the interests of employees and the company,but also improve corporate governance.China's ESOP started late,and coupled with the lack of comprehensive laws and regulations,the practice of China's ESOP is not mature.For listed companies in China,the ESOP only gradually emerged after the Securities Regulatory Commission issued the "Guiding Opinions on the Implementation of the Pilot Program for the ESOP" on June 20,2014.From 2017 to June 2019,a total of 300 listed companies in China implemented the ESOP,accounting for only one-tenth of the total number of listed companies in China's capital markets.As China's policies guide and support the ESOP,in the future,China's capital market will certainly have more listed companies implement the ESOP to achieve the purpose of improving the corporate governance structure and coordinate the interests of employees.Based on this,research on employee stock ownership plans is crucial.Foreign scholars' research on the ESOP started early,and detailed research on all aspects of the ESOP.Domestic scholars' attention on employee stock ownership plans is mostly on the motivation,implementation process and implementation of the ESOP.Theoretical research on the effect of implementation,while there are few case studies on the ESOP of specific listed companies,and the only few cases are mostly concentrated on the case of the ESOP of mixed ownership reforms in large state-owned enterprises,and are less focused on the ESOP of private enterprises.At the same time,the listed companies that have implemented the ESOP in China,more than half of the listed companies that are floating losses are private enterprises.Therefore,it is necessary to carry out case studies on the ESOP implemented by private enterprises.*ST Kangde,as one of the few private enterprises that had a liquidation of the ESOP and caused adverse effects,had its ESOP to complete the stock purchase on December 30,2016,and was then forced on November 7,2018.The liquidation was declared unsuccessful,and the average loss per employee of its 500 shareholders was as high as approximately 400,000 yuan,which had a bad impact on the interests of employees,the company,and the future implementation environment of China's ESOP.Therefore,this article takes *ST Kangde as an example,analyzes in depth the reasons and consequences of the failure of its ESOP,summarizes its failure lessons,and hope to providing reference for the future implementation of the ESOP in China,to better promote the smooth implementation of the ESOP in our country,so that it can truly become an enterprise incentive that can both benefit employees and help the company develop system.This article includes the following four sections.The first part is an introduction and an overview of related theories.Firstly,the research background and significance are explained,and a literature review is carried out from three aspects: the implementation motivation,the implementation process and the implementation consequences of the ESOP.After reviewing the research status,the research ideas and methods of this paper are proposed,and the overall framework of this paper is established.Secondly,the concept and characteristics of the ESOP are clarified in the theoretical overview,the seven major elements of the ESOP are explained,and three major theories related to the ESOP,namely the two-factor theory,the motivation theory,and the human capital theory was analyzed and found that the ESOP originated from the two-factor theory,and then developed under the guidance of the motivation theory and the human capital theory.The second part is the case introduction.First of all,based on the introduction of * ST Kangde's basic situation,analyze the implementation motivation of *ST Kangde's ESOP,which mainly includes establishing a long-term incentive mechanism to motivate employees,and release positive signals to the securities market to attract more investment and reduce the agency costs by establishing a interests-sharing mechanism between employers and employees.Secondly,the implementation process of the ESOP is divided into four stages: the planning stage,the stock purchase stage,the existence stage,and the implementation failure.The detailed analysis and elaboration are made to fully understand the case process and lay the foundation for the analysis below.The third part analyzes the reasons and consequences of the case failure.First of all,the internal reasons for the failure of *ST Kangde's ESOP are due to the inability of the short-term obligor to perform the short-term obligations,corporate governance defects,insufficient participation of the stockholders in the company's management,and the improper implementation of the ESOP.The external reason is that the relevant regulations are not perfect,the stop loss line is set unreasonably,and the due diligence of the trust company is insufficient.Secondly,the consequences of the failure of *ST Kangde's ESOP are relatively bad.One is that it hurts the economic interests of the stock-holding employees,resulting in an average loss of about 400,000 yuan per 500 employees;the other is that it damages the company's reputation and economic interests which makes the company image be damaged and the stock price of the company dropped sharply.The third is to worsen the implementation environment of future ESOP,which not only makes the public question the motivation of *ST Kangde's ESOP,but also makes the public question the rationality of the system.The fourth part is the research conclusions and recommendations.First of all,based on the above case analysis,the following conclusions are drawn: First,the lack of funds to cover the position of the obligor causes the employee's funds to lose security;second,improper timing increases risk of failure of the ESOP;third,defective corporate governance is the root cause of the failure of the ESOP;the fourth is that the relevant regulations of the ESOP need to be improved;the fifth is that the lack of due diligence of the trust company will cause the ESOP to fail;the sixth is that the unreasonable stop loss line is the failure of the ESOP Important factors.Secondly,based on the above conclusions,we put forward suggestions that are conducive to the implementation of the ESOP: one is to choose the appropriate timing for the implementation of the ESOP;the other is to improve corporate governance and strengthen restrictions on controlling shareholders;the third is to improve management model and set reasonable duration and shareholding ratio;the fourth is to improve the relevant regulations of the ESOP;the fifth is to revise and unify the rules for setting stop loss lines;the sixth is that asset management agencies should strengthen the adequacy of due diligence.