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1 unifying the regulations of varieties of publicly listed companies
Laws of corporate governance of Chinas publicly listed company’s lack of unified base.
Article 130 of company law says, “…The same shares must carry the same rights and the same benefit.” This is an important principle applying to the issue of shares.
In fact, however, that state –owned companies generally enjoy monopolies licensed to them by the state and state-owned stock is not negotiable in securities market. Therefore we can see a strange situation that most of capital comes from minority shareholders while most of benefit is contributed to majority shareholders (sometimes the representatives of state-owned shares) .The holder of a strategic block of shares (say 30%) is likely to wield greater influence than many other individual shareholders whose total shareholding adds up to a similar amount.
In the meantime, In china `s securities market, however, despite its short history, various kinds of shares have been issued such legal person shares ,natural person shares employee shares and shares to be he held by foreign investors. Shares are also divided into different classes, including A shares, B shares and H shares. Such practice has caused confusion for investors and has shaken the confidence of investors.
All these provisions are not in tune with the fair spirit of company law.
Particularly, the patronage in business conflicts the principle of WTO which pursuits to build up timely, transparent and non-discriminatory manner. China should offer national treatment and market access to foreign companies .In article 17 of part 2, GATT demands state trading enterprise safeguards full competition while they are delegated privilege to operate in practice. This is also a great challenge to our laws of state-owned companies.
In short, article 130 should take account into that different share issues may provide for different share prices and share conditions from previously issue share and be amended to be consistent with the principle of WTO.
2. Clearly defining the status of the representatives of stat-owned shareholders
《The Interim Rules of State –owned Assets of Experimental Stock Management Enterprise 》delegates authorities to the representatives of state-owned assets ,but more details in operation need to be set out .In the mean time, only duties are stipulated without correspondent incentives (see article 3,4,13,2). So I suggest the relating provisions should be added.
3. Tuning mono–composition shareholding structure to multi-composition structure
The other investors except state-owned shareholders should be allowed to attend the shareholders general meeting especially the institutional shareholders (for example the commercial banks). Since ordinary shareholders` pressure maybe too short-term while the institutional investors which will own well over half of quoted ordinary shares in companies will have their own long term commitments to consider and must therefore take a long view of profitability when selecting their investments
In addition, the institutional shareholders are stronger than individual ones to rival with the state-owned shareholders .we can expect the administrative intervention will be relieved with introducing the multi –composition shareholding structure.
Points 1, 2,3 seek to solve the problem lying in the property structure of our publicly listed companies.
Some suggestion in regard with inside governance is hereunder:
4. Stipulating more remedy procedure for minority shareholders and creditors
Articles 102 to 111 of company law are too brief to offer enough remedy for minority shareholders. One needs to look to other legislation in its treatment of some topics.
(i) Voting rights Article 106 says “one vote for one share held” also called majority rule tends to be used as tool by majority shareholders to manipulate AGM (annual general meeting) because so strict rules of veto power that only the state government, as one single shareholder, may hold enough shares to stop a resolution of shareholder` s meeting. Furthermore, the principle also cited in article 41 does not recognize the possibility of different classes of shareholders such as non-voting shareholders as occurs in other bodies of company law. Therefore we should adopt a more reasonable voting system such as Cumulative Voting System.
Article 108 has established a proxy system, which allows a shareholder to appoint an agent to attend the shareholders general meeting. But for it is too simple to operate, I believe it will be a good provision if some details are added to it.
(ii) Litigation rights Article 110 has authorized shareholders to exam and supervise the affairs of their company. Article 111 (also see article 63 of the securities law) authorizes the shareholders to bring a legal action if a resolution of the shareholders` meeting or of the board of directors violates the law or infringes upon the lawful rights and interests of shareholders. But it is too early to determine the likely effectiveness of this provision while it lacks of details.
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