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Another issue is raised by use of the phrase “the person’s responsibility” in chapter 10.The provision will lead to the serious problem of scapegoat .In my opinion, economy penalty maybe more appropriate than incarcerate the scapegoat of the company. On the other hand, where a corporate is being used as a device to protect those individuals who are manipulating the corporation for their own ends, it is desirable to make greater use of lifting of the veil of incorporation so as to attach liability upon those who have exercised control over the corporate entity .The legislator should consider to introduce direct litigation to safeguard the interests of shareholders and derivative suit to safeguard the company` s interests.
Nevertheless, protection of shareholders rights does not mean that there are no restraints on their voting and litigation, Laws should seek to balance the protection and prevention of the vexatious litigation against companies.
Meanwhile, the safeguard of the benefit of creditors is not enough, too. Many creditors (e.g. banks) have been involved in the debts with listed companies at the edge of insolvency. Soft budget makes the vicious circle continue .A new insolvency law are desired to strengthen the awareness of risk of listed companies and add more protection to the creditors.
5 strengthening the independence of board of directors
Article 118 together with articles 112 –117 of the company law, set up a framework for the management of publicly listed companies, which is great, needed in China. But some new methods are still needed to strengthen the independence of board of directors such as introducing independent directors into the board and establishing board committees (audit, compensation and nomination committees). These methods will be useful to relieve the popular inside control in our listed companies.
Chapter 3 sections 3 contain some general provisions with regard to the qualification and disqualification of directors (see articles57, 63 and 123 of the company law). Detailed provisions are still needed in regard with such matters as the criteria for the disqualification of directors. For example the duty of directors should be clearly defined which can be drawn from industrialized countries.
The company law has also failed to incorporate the concept of defacto directors and shadow directors although such circumstances are not uncommon in China.
6.separating the position of CEO and chairman
Article 120 provides “the board of directors may decide that one of its members shall concurrently serve as the manager of the company”. In my opinion, this should not be understood as a basis of unifying the position of chairman and CEO while lacking of strong control of so great power.
7.calling off the provision that management` s power is authorized by law
We find the management has been authorized to manage all affairs of a company, but also should be noted that management `s power is always restricted by the board directly .In this sense, I suppose that (i) we should cancel the regulations (see article 119) regarding management power authorized by company law directly and (ii) stipulate that managing rights are jointly exercised by the board and management.
8.regulating the motivation plan for management and other organs.
As restraint and incentive are two sides of a coin, it is necessary to prevent the management from action beyond the authorized scope. Meanwhile, incentive plan for the management and other organs should be stipulated in company law .As so far as material incentive (e.g. stock opinion or monetary matters) and spiritual incentive (honor or company culture), there should be a reasonable principle to control the spectrum of the motivation.
9.authorizing more power to the supervisory board
Since the supervisory board system is new in China, supervisory board is weakest polar of the power triangle of corporate governance for lacking personal and financial independence. My suggestion to solve this problem is here (i) making use of our trade union and drawing on the experience of Germany Participation of Employees;(ii) amending article 124 and clearly defining the proportion of employee participators in the supervisory board;(iii) amending article 126(4) and turning the proposal rights of convening the interim shareholders` meeting into executive rights;(iv) enlarging supervisory board the access to corporate information to improve the effectiveness of the work.
10.adding some provisions in regard with the mandatory information disclosure requirements
Just in the former case “HongguangShiye”, we can see there are fewer provisions about fraudulence of information disclosure to penalize civil liability (see chapter3 sections 3 and 4, articles 69 and 177 of securities law). Some references should be made to the information being generally available in the securities market.
In addition, more urgent legislation of penalty of fraudulence of the intermediary organization (such as audit, accounting firms) should be made and the related laws should be amended . Just as Zhou Xiaochuan, the chairman of CSRC said, “the legislation of the mediums is key link of our corporate governance”.
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