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Abstract Form the historical perspective, the establishment of supervisory board was not a simple result of legal transplant which copied the corporate governance rules set by other continental jurisdictions. The Chinese version supervisory board has three outstanding characteristics including introduced by mandatory rules, holding parallel position with board of directors, one third members must be employee representatives at minimum. These characteristics make it clear that the establishment of supervisory boards in state-owned enterprises is a conscious choice to solve two local problems. one is the integration of government administration with enterprise, another is the employees’ need to participate into corporate governance. Nowadays, although employees could participate into corporate governance through the board of directors and employee stock ownership plan, due to the international trend to separate management from supervision and the need to avoid excessive political interventions, the supervisory boards still need to be reserved in the state-owned enterprises.
Compared with supervisory boards in state-owned enterprises, independent directors are more independent from management, more professional in the field of law, finance and strategic management, more authoritative. Because of these advantages, independent directors function much better to resolve agency cost problems. Nevertheless, influenced by the dilemma brought by taking management and supervise responsibility at once, group thinking problem rising from the homogenous background, unique culture constraints, independent directors also fail to supervise management members. Further, contrast with independent directors, inspection commissioners and outside appointed supervisory board have more independence, expertise and authority. However, due to its limited role which is supervise the finance of state-owned enterprises and limited power having no penetrating nature, they fail to function well also. Acceding to empirical researches, commission for inspecting discipline has been proved to be a useful institution to handle corruption in state-owned enterprises. The penetrating nature of its supervisory power and its high prestige inside the party may explain its success. But, due to the existing flaws in its working mechanism, staff and expertise constraints, it still does not archive its full potential.
In the future, with the overall formation of the separation of enterprise management from excessive political interventions, corporate and other relevant legislations need not to prevent excessive political interventions by reducing the power held by supervisory boards. Conversely, relevant legislations should make legal reforms to help supervisory boards in state-owned enterprises to fuse with commission for inspecting discipline, which could not only make supervisory board more authoritative and its power more penetrating. Furthermore, relevant legislation should increase independence of independent supervisors by focusing more on the influences exerted by social ties and cultural constraints; promote professionalism and authority of supervisory board by allowing employees to elect non-employee representatives, selectively enabling supervisory boards to pre-approve important corporate issues and giving them more say in the field of corporate compliance.
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Published: 03 November 2022
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