The Shareholding Exercise Of ISC:Jurisprudential Examination And System Improvement

Shareholding Exercise,an emerging system of Chinese capital market,means that China Securities Investor Center(ISC)holds 100 shares of all listed companies for public interests,and exercises all shareholders’ rights as a shareholder.As an institutional innovation to improve corporate governance and protect investors,Shareholding Exercise is rooted in the theory of Shareholder Activism,by replacing traditional institutional investors with Non-Profit Organization(NPO)as the leading force of the active exercise.It is a macro governance innovation of the capital market from the traditional governance logic with the core of regulatory intervention towards the governance logic with private rights.It is also a solution to the “Market Failure”and “Government Failure”.Under this approach,shareholder’s status is the premise,public interests orientation is the perspective,and good governance is the object.This is the connotation and original intention of the Shareholding Exercise system.The Shareholding Exercise of ISC is generated from the background of the combination of different investor protection modes and China’s practice.With the new revision of the Securities Law on its positioning and confirmation,it is transforming the institutional innovation in the market-oriented reform of capital market legalization into practice.However,if we examine the practice from the perspective of legal logic and comparative law,we can find that the ISC’s Shareholding Exercise faces such dilemmas and risks,which include the subject’s role change,the abuse of rights in behavior and the ineffectiveness of functions.Specifically speaking,due to the fact that the ISC is excessively restricted by the regulatory agencies,the basis of its governance legitimacy will deviate from the information advantage to the power superiority,and the conflict of interests in the Agency Problem becomes more and more serious,which makes the change of shareholder’ status a channel for substantial expansion of the regulatory power;the excessive empowerment to the ISC and lack of supervision is actually the same as administrative regulatory path for the excessive pursuit of efficiency.However,it ignores the basic principal of shareholders’ equality under private law,which is more likely to lead to the abuse of shareholders’ rights in the dual game structure under the bureaucracy;the existing Exercise resources of ISC can not meet the practical needs to widely participate in the governance of listed companies,and the non-profit positioning is subjectively difficult to form an effective incentive for the Exercise.The root cause of the above-mentioned risks and dilemmas lie in the lack of both governance of the ISC and Exercise behavior regulation.Therefore,in order to play a positive role in the Shareholding Exercise and truly shape it as a great experience of corporate governance and investor protection in China,it is necessary to distinguish the its identity and public responsibility,regulate the relationship between rights’ limitation and empowerment,its interests and public interests in terms of conceptual recognition,and improve from the dimensions of subject governance,normative behavior and guarantee function.Specifically,we should distinguish public factors in the governance objectives and private logic in the governance means,and require the ISC to give full play to the advantages of information-enhancing tools based on its shareholder’s identity;realize the combination of limited empowerment in the regulation and regulatory supervision in the exercise implementation,reasonably defining the scope of public shareholder’s right,and taking the cooperative regulatory concept as the exercise orientation;adhere to the priority principle of public interests with the interest coupling of minority investors,and protect the interests and functions of the ISC in the supply of Exercise resources.Therefore,in the subject dimension,it is necessary to establish the ISC’s role of a shareholder,improve its internal governance structure,clarify the source of funds and selection of employees to improve its independence;in the behavior dimension,it is fundamental to match the ways of exercise as matters and regulate the Shareholding Exercise through information disclosure,and to establish an accountability mechanism as the remedy for improper exercise;in the function dimension,it is vital to strengthen the protection of Shareholding Exercise,allocate resources and increase the internal motivation through economic and reputation mechanisms,and to enhance cooperation with regulators,intermediary agents and institutional investors.