Zheng Zhigang: Only by understanding these unique Chinese company governance stories can we truly understand how the board of directors of the listed company operates can propose policy suggestions to improve the management of listed companies.

As an observers and researchers in the governance practice of Chinese company, my team and my team have been committed to telling a unique corporate governance story in the background of the Chinese capital market system.Today, I will share with you that in the process of operating the director system of the governance system of a listed company, we have observed the stories with Chinese culture and institutional elements.The reason why it is called Chinese story does not mean that these stories will only happen in China, let alone we need to develop a unique Chinese company governance theory to explain it.This is just emphasizing the brand's deep Chinese culture and institutional elements in the governance stories of these companies.Only by well understanding the characteristics of Chinese culture and institutional characteristics can we well understand the general company governance logic behind these stories.

These four company governance stories focus on how directors are generated, how to change, and how to perform their duties.Some stories are related to all directors, while others are related to the very important independent directors formed by the board of directors.The first story is related to how the directors are related, telling the story of the actual controller in the board of directors that overcome the directors; the second story is related to the change of the independent director, telling the story of the unique director but not re -election.The third story is also related to the changes of the independent directors. It tells the story of some independent directors that are re -appointed as the independent directors of the new board of directors at the end of the term of office.The fourth story is related to the performance of the unique director. It tells the story of the unique director about the relevant board of directors and the characteristics of the term of the term of negative opinions.

Although these stories do not necessarily happen in each listed company, among Chinese listed companies, a lot of companies may have one of the stories, or even several stories.Therefore, it is not an exaggeration to summarize them as the Chinese story in the director system of the listed company.

Let's first look at the first story: the over -appointed director in the board of directors.According to the research habits and traditions of my team, we first start with the case of the case, and then report to everyone to observe the experience and evidence based on large sample data.In order to avoid unnecessary impact on related companies and make readers pay more attention to the academic laws and internal logic behind the story we tell, we have dealt with the specific companies and directors involved in the story in the next article.

In June 2017, company W completed the new board of directors.Among the new board of directors composed of 11 members, except for 5 independent directors, six are internal directors.The major shareholder T, which holds only 29%of the shareholding ratio, recommends three of them, accounting for 50%of all internal directors, which is much higher than its shareholding ratio, thereby forming the so -called excess (ratio) appointment of directors.This case reminds me of an ancient Kashmir proverb: the world belongs to Allah, the earth belongs to Paxia, and this is the East India Company's rule.We can see that while the oversupply of directors, while achieving the basic purpose of the board of directors, it is a good manifestation of the actual controller's intention to strengthen the company's control, and it has become an important form of implementation of the actual controller's control arrangement.

The company is nominally a shareholder, but some of the major shareholders can play a greater influence in the voting of the relevant proposals of the board of directors by appointing the proportion of their shareholding proportion in the board of directors, so that their will can be well implemented and implemented.This becomes a actual controller.

So, why is it more typical in the context of China's capital market system?

There are many family companies in Asia and Europe, and these family companies will also appoint directors.But please don't forget that these family companies are often relative or absolutely controlled at the equity level, and they are not worried about the control of the control. In the board of directors, they often tend to introduce professional managers with outstanding professional skills as directors to make up for the lack of family members' lack of ability to manage the ability to manage their family members.Bad.Therefore, over -appointed directors are not the typical practices of these Asia -Europe family companies that seem to strengthen the company.For the British -American company's governance model, which is more familiar with the highly scattered equity, its popular board organizational practice is that the rest of the other except the CEO are external (independent) directors, so there are few major shareholders who are overdaning directors and the directors have occurred.EssenceFrom 2003 to 2015, about 17%of listed companies in China have different degrees of overly appointed directors, and the largest excess approved directors are as high as 50%.

The emergence of this phenomenon is related to a unique equity structure popular in China or non -state -owned holding companies, and the tradition of major shareholders and the major shareholders of the board of directors.In the above sense, the excessive appointment of directors to become a very unique Chinese company governance story around the Chinese capital market system.

So, how should we interpret the phenomenon of excess direct directors in the actual controller of the board of directors?The understanding of its related mechanisms can actually be inspired by how the actual controller uses the pyramid holding structure to achieve the analysis of the company's control.Suppose that a parent company holds 50%of the shares of its subsidiaries, and the enterprise group formed by the pyramid holding structure of 50%of the subsidiaries holding the Sun company.Although the parent company has only 25%of the cash flow rights of Sun Company (50%Times; 50%, which is reflected in the total capital ratio of Sun Company by the parent company), it (through the 50%holding subsidiaries) of the control of Sun Company's control of Sun CompanyHowever, it was 50%(it was reflected by the subsidiary's 50%voting voting right of Sun Company).With the help of the pyramid holding structure, only the parent company of Sun Company's 25%cash flow right has achieved control of more than 50%of Sun Company, leading to the separation of the so -called control and cash flow rights.

The so -called control here reflects the influence of the actual controller on major decision -making at the shareholders' meeting of the listed company at the shareholders meeting of the listed company, while the cash flow right reflects the responsibility of the actual investment company's capital contribution.ability.The separation of the two means that the responsibility is asymmetric and the asymmetry of enjoying the rights, forming a negative externality in the economics sense.As a result, the actual controller can use the separation mechanism of the above control and cash exfoliating rights through the tunnel mining of the subsidiary Sun Company through related transactions and capital occupation, which damages the interests of the exterior shareholders of the subsidiary Sun company.

In terms of forming control of control from cash flow rights, and generating the negative external part of the economics sense, the A shareholders of Company W, the company we observed here, and the actual controller's economic consequencesIt is consistent.It's just that the pyramid holding structure is the separation of control and cash flow rights by using the control chain, while the overcoming directors are the main shareholders of the actual controller to nominate more directors in the board of directors, so as to form the actual influence of major decisions of the board of directors.Instead of the separation of the responsibility and responsibility of the shareholding ratio, it is realized.However, whether it is a pyramid holding structure or an over -appointed director, it means that the asymmetry of responsibility and the asymmetry enjoyment has made the actual controller tunnel mining, and it is possible to damage the interests of externalized shareholders.

I and my research team's experience in actual controller over appointment of directors showed that the more the actual controller approves the more directors, the more serious tunnel mining behavior conducted by related transactions in the future, and the future economic performance of the enterprise is even worse;And when the enterprise is a non -state -owned nature, a high degree of separation between the two rights and the low shareholding ratio of the actual controller, among the actual controller's overcome directors, the tunnel mining behavior will be more serious, and the corresponding economic performance will be worse.EssenceTherefore, our policy suggestions are that the upper limit of the main shareholders nominated directors should be set up reasonably in the organizational structure arrangement of the board to ensure that its responsibility bearing ability and control ability are equal.

The two stories I tell you next are related to the change of the unique director.We first tell the story of the unique director's re -election.In the British and American listed companies, if an independent director needs to leave, it will often choose to resign publicly. The information will also appear in the announcement of the obligation to disclose the information disclosure obligations that listed companies need to perform as a public company.And the midway of the independent directorResignation often conveys the company's negative information to investors, which can easily cause stock price fluctuations; sometimes it will even damage the reputation of the independent director itself.

However, it is also the change of the independent directors. We have observed a special way to reflect the elements of Chinese culture and institutional elements in the Chinese capital market.The institutional elements come from two independent directors with the number of members in the board of directors of the listed company in China. There are two terminals with a term of office with less than 1/3, and each term of office does not exceed three years.One independent director can choose or be selected for re -election between two term.The cultural elements come from the long -standing and expensive business culture that has been prevalent in China for a long time, and does not want to do not want to break the cultural tradition of interpersonal relationships that have formed.Some independent directors who need to leave the employment will choose to expire in the last term. At the time of the new session, they chose to leave quietly without taking away a cloud without re -election.

Due to the mix of information from the re -election, the resignation of the independent directors weakened the negative effects that the unique director's change is usually accompanied by the above methods to avoid violent fluctuations in the stock price.As a result, the unique unique unique unique director stories of the Chinese capital market system with the Chinese system and cultural elements have not been re -elected.

We also start with a case of observation and thinking about this phenomenon.The independent director of the 6th board of directors of company K was unexpectedly unsuccessful in the 7th independent director in 2012; in 2013, the company K was illegal in corporate governance, information disclosure, financial accounting and other aspects from 2009 to 2012.The behavior was ordered by the regulatory agency to make corrections within a time limit.The inspiration of us in the above case is that in addition to the public resignation of the independent directors, external investors may also interpret whether the unique director will be re -elected by this special way to interpret the company's governance information information that may be passed on.

The experience of my team around this issue shows that if an independent director chooses to quietly resign in a manner in the way of re -election after the expiration of the last term, then, the probability of such illegal behavior in such a company will compareCompanies of the above phenomenon will increase significantly.If this resignation is an accounting background, then the company's probability of violations in the future will be higher and the plot will be more serious.Therefore, we don't think that the unique director has not been re -elected and resolves the dispute in a peaceful manner, but behind the peacefulness, there is a greater crisis.It is also important that at this time, it is silent, which is actually providing a special way for us to observe and interpret the governance status of a company and the potential risk of future violations.If you are considering investing or even acquisition of a company, and this company has a unique director's re -election, then it is recommended that everyone be cautious when deciding.

Following the change of the unique director, there is another story to share with you.That is, after two issues we observed, after two issues, after a short period of time, after a brief departure, the so -called independent directors who were hired back to the company to continue to serve as independent directors returned.For example, the company Y company listed on the Shenzhen Stock Exchange hired A and B as the 7th independent directors in 2011, and both A and B served as the 4th and 5th independent directors of the company from 2002 to 2008;Company Z returned to the 4th independent director in the 4th of the 4th year after he left his office from 2000 to 2008, two years after his departure.Simple statistics show that between 2009 and 2014, among Chinese listed companies, companies with the phenomenon of returning independent directors accounted for the proportion of companies in the year from 1.36%in 2009 to 9.67%in 2014.

On the one hand, the phenomenon of independent directors is also inseparable from each independent director of the Chinese listed company mentioned earlier. There are only two terminals, and each term of office is three years.On the other hand, it is also related to cultural factors.If it is said that whether to choose unwavering candidates as an independent director is an institutional issue, then under the premise of satisfying the basic qualifications of the unique director, choosing any relatives or any sage is obviously a cultural issue.After all, at least these independent directors who returned in the form did not violate the regulatory authorities that the independent directors must not exceed two sessions.As a comparison, we noticed that although some countries listed companies did not restrict the term of the directors, the term of office of the directors exceeded a certain period (10 years) and was no longer considered an independent director.Therefore, the phenomenon of independent directors is also a very unique Chinese company governance story that occurs in the background of the Chinese capital market.

Our question is, is the independent director who returned like this or a real independent director?Is this consistent with the original intention of setting up interest in company governance practice, which mainly depends on the original intention of reputation in motivation?We are worried that the phenomenon of independent directors will weaken the independence of independence and the effective performance of the independence and supervision functions to a certain extent.With such doubts, my research team empirical testing the influencing factors and economic consequences of the phenomenon of independent directors.Our research shows that in recent years, the chairman has not changed, the chairman comes from the internal promotion, the chairman's salary of the chairman, and the company that has not published a negative opinion at the listed company's salary, and the independent directors may return to the independent directors. Therefore, these factors have become appraisal and they have become appraisal andIdentify whether a company has an important sign of the culture of the board of directors.Judging from the economic consequences brought by independent directors, compared with the control group that does not have the phenomenon of independent directors, companies with independent directors have more likely to have related transactions in the future, higher agency costs, corporate performance performanceworse.

For the independent directors who have been returned, we have observed that on the one hand, compared to those independent directors who were appointed for the first time, these independent directors who returned returned were rarely said to the board of directors.The important performance of Dong's duties; on the other hand, these returned independent directors are more inclined to support the board of directors to issue high compensation to management, but the sensitivity of the management salary performance that is used to inspire enhancement has not changed significantly, so it increases, so it increases increaseThe salary is excessive salary that harms the interests of shareholders.

The last story told to you today is related to the performance of the unique directors just mentioned.We just mentioned that it is not a real, direct and important manifestation of the directors' proposal to the unique director to fulfill the supervision function.Beginning in December 2004, the Shanghai and Shenzhen Exchange demanded that listed companies have disclosed specific opinions issued by Dudong's proposal to the board of directors, including the content of the proposal, the results of the board of directors, the name and reasons of the directors who vote against or abandoned the votes.This brings convenience for us to observe the status of unique directors.Theoretically, the types of opinions issued by the independent directors on the board of directors can include in favor, opposition, abstaining, reserved opinions, unable to express opinions, objection, and other.

However, it is easy to understand. On the one hand, due to the influence of traditional Chinese culture, independent directors less adopt extreme opposition votes to express their opposition, but to adopt other more mild ways to propose objections; on the other hand, studies have shown that studies have shown that research indicates thatThere is an anti -elimination mechanism for the independent directors that Chinese listed companies say no. Compared with the unique directors who have not told the board of directors, the unique directors who are not talking about will be 1.36 times higher than the current job in the next year.We can see that at least due to the above two reasons, from 2005 to 2013, only 0.98%of the proposals of more than 11072 board of directors from all A -share listed companies were issued by independent directors.Said, there are very few independent directors.

What is particularly interesting is that you will find that there will be differences in the behavior he said in the same independence.This is the story we want to share here about the characteristics of the independent directors.Because everyone is well known to the independent directors and other institutional factors, we see that the characteristics of the independent directors say that the characteristics of the non -term stage have also become a very unique corporate governance story in the background of China's capital market system.An empirical study that was completed by my research team around the independent directors at different stages of the term of office showed that there will be a significant difference in supervision behavior in the first term and second term of Chinese listed companies.Generally speaking, in the second term, the possibility of a negative opinion on the board of directors of the board of directors was 1.41 times that of the first term.

So, how should we explain this interesting phenomenon?This phenomenon reminds me of an old saying: a man will die, and his words are also good.It's easy to understand, for a uniqueness that seeks re -election in the first stage of the term of officeIn the face of the mechanism of unique directors that may not be eliminated and the culture of the board of the only relatives, choosing to shut up will be the wise move of the independent director;The considerations of Dong reputation and career development can only exceed the anti -elimination mechanism and cultural effects at this time, and rise to the dominant effect.

It is also interesting that among those companies that have occurred in the anti -directors, the unique directors will be more inclined to choose silence and obedience in the first stage.The anti -unique director said that not only in the short term, but even the effectiveness of the future supervision of independent directors in the long term, becoming one of the important reasons for the unique director of the listed company in China.Based on the above observations, we tend to suggest that in the Organization of the Board of Directors of my country -China listed companies, we can consider actively promoting the staggered system of independent directors, that is, the board of directors to change in batches.In addition to helping to maintain the stability of the board of directors and the persistence of policies, we see that the special benefit of the above system for the two independent systems of the two terminals currently implemented in China is that this will make each board of directors naturally exist in different term stagesThe independent director, thereby increased the possibility of unique directors, thereby increasing the effectiveness of the monitoring of the unique director.

Finally, let's summarize the discussion tonight briefly.I am glad to share with you four Chinese stories about the director system in the context of the Chinese capital market system.The first is related to the generation of directors. Under a unique equity structure, how big shareholders can use excessive appointment of directors to strengthen actual control.The second story is related to the change of the third story. The previous story is that the unique director is not re -elected, and the latter story is about the return of the independent director.These two stories and the last unique director about the unique directors' performances said that the characteristics of the term of the term of office are not only related to the system factors such as the independent director of the Chinese capital market, but also related to the cultural factors such as the board of directors of the board of directors.We can see that only by combining the above -mentioned institutional factors and cultural factors, can we truly understand the unique Chinese stories that Chinese listed companies are organized by board organizations, unique directors, and their duties.Only by understanding these unique Chinese company governance stories can we truly understand how the board of directors of the Chinese listed company runs, and we can propose policy suggestions to improve the management of the governance of Chinese listed companies.In the future, I also look forward to participating directors can share more and more interesting Chinese company governance stories from me.

(According to Professor Zheng Zhigang's speech at the conversation (closed door meeting) of Chinese and foreign directors in 2019. This article only represents the author's point of view. Editor -in -chief email: [email protected])