In Search of an Effective Monitoring Board Model: Board Reforms and the Political Economy of Corporate Law in China
46 Pages Posted: 1 Apr 2007
Abstract
The board governance system is a major corporate governance difference between jurisdictions. While functional convergence and hybrid convergence of national board systems now seem prevalent, China's board reforms present a unique pattern of change in formal board governance rules.
On the one hand, the new institution of independent directors was "codified" and made mandatory for all Chinese listed companies, regardless of their size or ownership structures. On the other hand, the traditional management-supervisory dual structure was preserved and the supervisory board as a monitoring organ strengthened.
The article explores what factors may have shaped the trajectory of board governance reform in China by addressing the following questions: (1) why the new institution of independent directors was chosen in 2001 and then "codified" in the new 2005 Company Law amid stiff opposition; (2) why the existing institution of supervisory board has persisted, despite its ineffectiveness and inefficiency in monitoring; and (3) why China has adopted its unique mandatory approach to board reforms.
The article argues that the trajectory of China's board reforms has been shaped by the intricate interaction between globalization, local interest group politics and the official ideology in China. China's board reforms, the article suggests, support the proposition that despite the powerful forces of globalization and efficiency, substantial differences in corporate law systems will persist.
Keywords: China, Corporate Governance, Company Law, Board Reform, Political Economy
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