What is Corporate Governance?

Corporate governance, viewed from a broad perspective, is a science that studies corporate power arrangements. From a narrow perspective, it is the science of living at the level of corporate ownership, researching how to authorize professional managers and perform supervisory functions against professional managers performing their duties.

Corporate Governance

(Economic term)

Corporate governance, viewed from a broad perspective, is a science that studies corporate power arrangements. From a narrow perspective, it is the science of living at the level of corporate ownership, researching how to authorize professional managers and perform supervisory functions against professional managers performing their duties.

Based on the professional position of economics, enterprises have two rights: ownership and management rights, which are separated. Corporate Management (Corporate Management) is a science built on the "level of management rights" of an enterprise. What it pays attention to is that the owner of the business authorizes the owner of the management right. When the management owner obtains the authorization, he takes all measures to achieve the business objectives. The conduct of business means. Corresponding to this, Corporate Governance is a science built on the "ownership level" of an enterprise. It pays attention to scientifically authorizing professional managers and scientifically supervising professional managers. ^[1]

Corporate governance structure judgment benchmark

All shareholders agree on a value trend and set up a company in the form of a company limited by cash or other capital contribution to form a contract to measure equity interests,

There are three main corporate governance models: the British-American model, the Japanese-German model, and the family model.

What is equity incentive

Equity incentive is a kind of economic rights that is given to the business operators by obtaining the company's equity through the business operators, so that they can participate in corporate decision-making, share profits, and bear risks as shareholders, thereby serving the company's long-term development. An incentive method. Equity incentives are different from other corporate governance models in that they no longer use rights granting and deprivation, supervision and checks and balances. On the surface, equity incentives are a reward to shareholders from operators, an exercise of options and The acquisition of additional property, but essentially changed the operator from a pure agent to a shareholder in a special sense. The stock held by this "shareholder" in this special sense or other property rights and secondary interests Investors in the market are very different, and their differences can be explained in two ways: (1) equity incentives are often an option for the operator, and whether shareholders will honor their equity incentive plans Set certain business objectives as exercise conditions, and also have strict restrictions on terms and numbers, which is very different from secondary market investors; (2) stock options often have a lock-up period and other transfers Time and quantity restrictions. Such restrictions can be expressed both in company law and in the articles of association. Investors in the secondary market are buying The stock is not limited in this respect, is entirely desirable behavior of buyers and sellers. As a rational economic person, no one is willing to depreciate and depreciate their own property. Through equity incentives, shareholders abduct the operator and the company s operating performance and performance tightly, so as to achieve a common situation. The effect of advancing and retreating is undoubtedly a good way to reduce the moral hazard of operators, reduce agency costs, and maximize shareholder benefits.

There are various forms of equity incentives, mainly including stock options, performance stocks, virtual stocks, stock appreciation rights, restricted stocks, deferred payments, employee stocks, etc. Among them, the most widely used are stock options and restricted stocks, and other forms The equity incentive plan is roughly a variant of these two forms. The following discussion also focuses on these two types of incentives. (1) Stock options refer to the right of shareholders to give management management the right to purchase a certain number of company shares within a certain period of time. Whether such rights are realized depends on whether management management can achieve Business objectives set by shareholders. Prior to exercise, the management who was granted the stock option did not enjoy the property rights; after the exercise, the gain obtained was the difference between the exercise price and the market price on the exercise date. (2) Restricted stocks refer to the resolutions of the shareholders' meeting that allow the operator to obtain a certain number of shares of the company at a lower price or free of charge under predetermined conditions. The restricted stock incentive plan needs to include certain performance conditions. Under the premise of meeting the set performance goals, the incentive object needs to purchase the stocks granted. If the predetermined conditions are not met, the restricted stock incentive plan will naturally terminate. Restricted stocks often have strict time and conditional restrictions when they are sold. Take the United States with the most developed equity incentives as an example, the management management has very strict restrictions on selling restricted stocks for profit. For example, if the company continues to reach a certain level of profit or the management management holds a certain number of years or even retires, it can be sold. Kind of stock.

From a legal point of view, the stock option and restricted stock award agreement is actually a conditional, time-limited sale or gift contract between management and shareholders, which can be either free or paid Yes, although stock options and restricted stocks are both equity incentive methods, there are significant differences between the two, mainly as follows: (1) Stock options can only be exercised when certain conditions are met, and their acquisition It is the right to share the company's future income; restricted stock is a company that first presets certain conditions to grant operating management certain stocks, but only when the restricted conditions such as performance and working life are met Sell it for arbitrage. (2) Stock option holders can choose to exercise or not to exercise. From the legal point of view, it is a formation right. This formation right determines the time. After the prescribed exercise period, the formation right is destroyed. When the stock market price is lower than the exercise price, the stock option holder can choose to exercise the right; however, restricted stocks are first awarded to the incentive object at a price lower than the current market price. If the future stock market price is lower than the current price, then The holder cannot arbitrage from it. Therefore, the management of the company is diligent and responsible for the company because of its tendency to avoid profits and harm, and thus achieve excellent operating performance.

Equity incentives are a propellant of corporate governance

At present, it is inconclusive whether the implementation of the reward strategy can improve the company's operating performance. On the contrary, some scholars believe that the implementation of the reward strategy is the performance of the company's inefficient shareholder supervision. Strong compensation plans are not always a rational choice in corporate governance. Some scholars have concluded that there is a significant positive correlation between listed company performance and equity incentives through economic modeling studies. Jingbang's understanding is that various corporate governance measures, including such incentive strategies as equity incentives, must be reviewed and tailored when adopted. At the same time, the reward strategy is only one of the corporate governance methods, and can not replace the selection, supervision and other strategies. Comprehensive use of various methods often can achieve better results, but it is undeniable that equity incentives and other incentives are reducing the agent's Moral hazards and agency costs, attracting and retaining talent, resolving insider controls, and fully committing themselves to the company's operations and shareholders' interests have a positive effect.

Judging from the practice of countries around the world and the provisions of the Company Law, equity incentives have been basically affirmed as a means of corporate governance. US law authorizes companies to issue stock options, shadow stocks, and other forms of incentive compensation. ; Germany's original incentive compensation was strictly restricted by tax law and company law, but this situation has also changed to a certain extent. For example, German company law allows companies to repurchase 10% of their issued shares for stock option plans. Of course, the "Enron Incident" has caused many western companies to abandon the incentive of equity incentives, and incidents such as sky-high compensation for management due to the implementation of stock option plans have also emerged in the country. In this regard, any system has a process from imperfection to perfection, but it cannot negate the role of equity incentive plans in reducing agency costs and giving full play to the enthusiasm of talents. ^[4]

In the 19th century, the state

Global Director Development Circle

After the governance scandal in the early 2000s, many organizations around the world were established to promote governance principles. But the oldest and most prestigious among them are members of the Global Director Development Circle. Members come from board organizations on five continents. It is a leading non-profit international consortium with professional membership.

Its members include:

The National Association of Company Directors is the oldest and largest non-profit membership organization in the United States, and its members are members of the company's board of directors. The association has passed education, research, and thought leadership, and has shaped the corporate governance practices of the United States for almost three decades. The association serves 8,500 members and provides certificates for educational directors. Its credentials are recognized by NASDAQ, Institutional Shareholder Services, TIAA-CREF, corporate advisory agencies, and other prominent US regulators, review panels, recruiters, and committees.

The British Institute of Directors is the oldest and largest board of directors in the world, with more than 52,000 members, a 20-year history of director training, and has expertise in certification and certification including chartered directors in the UK and overseas. The British Institute of Directors has branches throughout Europe.

The principles of corporate governance include several elements: honesty, trust, integrity, openness, performance orientation, responsibility and reliability, mutual respect and commitment to the organization.

The most important thing is how directors and management can establish a model of governance, a value that other company participants can rely on, and can effectively evaluate its effectiveness on a regular basis. In particular, advanced

Relevant organizations involved in corporate governance include government or regulatory organizations such as the SEC, the CEO, the board of directors, managers, and shareholders. Other stakeholders are involved, such as

There are many different models of corporate governance in the world. These differ from the varieties of capitalism. The liberal model is common in the United Kingdom and the United States, and tends to use shareholders' rights to determine priority. Coordination models common in continental Europe and Japan identify workers, managers,

Financial reporting is a key element necessary for a company's management approach to function effectively. For capital market participants, accountants and auditors are the main providers of information. Company directors should be qualified to expect management to comply with legal and ethical obligations and rely on the ability of auditors to prepare financial information.

Current accounting standards allow a certain degree of choice in determining accounting methods, cognitive standards and definitions of accounting entities. This criterion improves performance by asking users for additional information costs. In extreme cases, it is more likely to involve information confidentiality.

Among them, whether the accounting institution concerned can maintain the independent identity of auditors and management consultants in the audited company. When a conflict of interest occurs, the degree of objectivity of financial reporting becomes the focus and the company may terminate its consulting services.

The collapse of Enron is an example of misleading financial reports. Enron created the illusion, hiding a large loss. The excuse of the third party should cover a large loss, but in fact Enron owns the third party's share holder.

Good financial reporting is not enough to make corporate governance effective if no one handles the report properly or if informed people do not fulfill their supervisory role.

Corporate governance and corporate performance

What is a well-managed company? That is, the company will have more external independent directors, who have no personal contact with management, conduct formal assessments of other directors, and respond quickly to investors' requirements for governance data. This insurance premium depends on the market. In Canada, the average company is about 11%, and the uncertainty is about 40%.

Other studies have found a connection between corporate quality perceptions and superior stock market performance. In a five-year survey of Fortune Magazine's "most admired company", Antunovich et al. Found that the "most admired company" reported an average of 125% a year, while the "least admired company" averaged Reported only 80%. An independent study by Business Week pointed out that institutional investors and experts can help distinguish good and bad corporate governance, with higher scores and higher returns. The legal significance of corporate governance

In a legal sense, corporate governance needs to address the company's rights distribution issues, and its core is the distribution of rights and mutual supervision and containment among shareholders (large) committees, boards of directors, supervisory boards, and managers, that is, which rights are controlled by shareholders (large ), Which rights are enjoyed by the board of directors and which are enjoyed by the board of supervisors. These organizations, through the enjoyment of their respective statutory and charter rights, constitute the company's decision-making, implementation and supervision system, thereby ensuring that the company can Healthy and sustainable development. Therefore, corporate governance in the legal sense is to build such a scientific and reasonable corporate decision-making, execution and supervision system.