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C. The basis of the corporate governance—the structure of shares
The structure of shares which determines the model of corporate governance.
In my opinion, the corporate governance system is decided by the structure of the shares, that is to say there are different models of corporate governance on the basis of different structure of shares.
Either independent director system or the supervisory board is the indispensable part of the corporate governance as a supervisory organ of the firms. To choose what kind of the supervisory organ is determined by the structure of the shares.
In Germany and Japan who adopted the Two-tier System, the shares are relatively concentrative and stable since the large shareholders are often the banks who can directly intervene in the business of the firms. （6） Consequently, the directors and even the managerial staff are usually elected or appointed by the large shareholders. However, the supervisory board is composed of the representatives of all the shareholders, the employees and sometimes the independent directors. Since the assemble shareholders meeting is coincide with the board of the directors and the supervisory board, the mutual restriction is between the supervisory board and the board of directors the small shareholders,（7）Substantially the mutual restriction is the restriction between the large shareholders and the small shareholders, the employees. This kind of restriction is very effective because there is economic conflict between large shareholders and small shareholders which can stimulate the supervisory board to supervise the mangers.
While under the One-tier system, the structure of share is characterized by the highly scattering and social. For example, in a large publicly held corporate in America, only 5 percent to 10 percent shares can make the owner of them control the board of the directors. （8） The scattering resulting the “inside control”（9）which prevented the shareholders from knowing the truth of the firms’ business so that the separation between the ownership and the management appears.1) the highly decentralization between shareholders makes it impossible to concentrate to manage the firm collectively and intently; 2) furthermore, in American, the board of the directors as the representative of all the shareholders to deal with the business of the firms is regarded as the decision-maker on crucial affairs, not the managers who deal with the daily business,（10）which makes it impossible for the board of the directors to be directly in touch with the information of the business. Hence the board of the directors has to make decisions on the information provided by the managerial staff, and the possibility of wrong decision based on the wrong information is high. 3) the result is that the direct control of the firm is not the board of the directors (the shareholders), but the managerial staff whose interests is conflict with the firms.
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