What Are the Different Kinds of Corporate Governance Mechanisms?

Corporate governance mechanism, English translation: Corporate Governance System, which also means "corporate governance system" or "corporate governance system". The corporate governance structure is equivalent to the "operating system" of the enterprise, and the professional supervision system is equivalent to the "application software" of the enterprise, which together form the corporate governance system of the enterprise. As the corporate governance system has a mechanism for adjusting the subjective initiative of the people, it covers the operation mechanism of the shareholders (major meeting), the board of directors operation mechanism, the supervisory board operation mechanism, and the company's financial, human resources, operation and management, legal affairs, product technology research and development supervision Therefore, no matter which country or enterprise, the design of corporate governance structure must start from the perspective of mechanism design in order to improve and enhance the corporate governance environment of the enterprise. ^[1]

Corporate governance mechanism

Corporate Governance Mechanism, English translation: Corporate Governance System

In the long-term corporate governance practice, the corporate governance system has been continuously improved, forming a set of interconnected corporate governance mechanisms. According to the functional division of corporate governance mechanisms, there are four main governance mechanisms: First, incentive mechanisms, that is, how to motivate directors and managers to work hard to create value for the enterprise and reduce

The fundamental purpose of building a corporate governance mechanism is to ensure that it can effectively improve the state of corporate governance and the efficiency of corporate governance. The study of corporate governance efficiency can be analyzed from two perspectives: the combination of governance mechanisms and the comparison of governance benefits and governance costs.

From the perspective of the combination and allocation of governance mechanisms, the corporate governance mechanism is the result of the organic combination of various governance mechanisms. Under the established legal, economic and market environment conditions, whether the various governance mechanisms achieve a reasonable combination becomes the key to determining the efficiency of corporate governance. If we consider the pursuit of the governance objective (maximization of shareholder benefits) as a utility objective, the utility of the corporate governance system can be expressed as a function of various specific governance mechanisms. However, the effectiveness of the corporate governance system is not a simple addition of various governance mechanisms in the system. Under different legal, economic, and market environment conditions, the roles and contributions of various governance mechanism elements are different. Also, some governance There are also conflicts between mechanisms. This means that a corporate governance system does not include as many governance mechanisms as possible. In economics, there is the concept of "Pareto optimality", which indicates the efficiency of resource allocation, which can also be used to measure corporate governance mechanisms. If in a corporate governance system, the combination of various governance mechanism elements cannot be used to increase the level of utility of at least one stakeholder while ensuring that the level of utility of other stakeholders will not decrease, then we call This corporate governance system has Pareto governance efficiency.

From the perspective of the comparison of governance benefits and governance costs, both the construction of the governance system and the operation of the governance mechanism require costs, and of course, benefits should be obtained (for example, reducing agency costs and increasing the value of the enterprise Etc.), we call it governance gain. Governance costs refer to all costs related to corporate governance activities that occur under a certain corporate governance system, including agency costs, incentive costs, decision costs, and maintenance costs of the governance system. Agency cost refers to the sum of the principal's supervision expenses, agent's guarantee expenses, and residual losses in the commission-agent relationship. Residual loss refers to the decline in the level of utility caused by a deviation between the agent's decision and the principal's utility maximization goal. Incentive cost refers to the sum of monetary compensation and non-monetary rewards paid by the client to the agent, including compensation, bonuses and other benefits. Decision-making costs include costs incurred during meeting discussions and board bargaining. The maintenance cost of the governance system refers to the expenses incurred to maintain the operation of the corporate governance mechanism. From the perspective of costs and benefits, it can be considered that the optimal corporate governance efficiency is to obtain the largest governance benefits with the smallest governance costs. We can use the ratio of governance benefits to governance costs to measure the efficiency of corporate governance. The larger the ratio, the higher the efficiency of corporate governance, and the lower the efficiency of corporate governance.