What Is the Role of Business Ethics in Corporate Governance?

The idea of corporate social responsibility originated in the United States, emphasizing the company's responsibility to stakeholders other than shareholders (creditors, employees, customers, suppliers, financial institutions, communities and governments), including compliance with business and industry regulations, business ethics, Safeguard production safety and occupational health, protect the legitimate rights and interests of workers, support charities, and protect the environment. After decades of development, corporate social responsibility thinking has gradually affected major global economies, attracted widespread attention from governments, intergovernmental organizations, and various non-governmental organizations, and it has also started to be valued by companies themselves. In 2004, the Organization for Economic Cooperation and Development (OECD) revised its "Corporate Governance Guidelines", greatly expanding the scope of the definition of "stakeholders", and clearly stated that an incentive mechanism should be established to promote employee participation in corporate governance and protect the interests of stakeholders. And other corporate social responsibility requirements.

China Corporate Governance Report (2007): Stakeholders and Corporate Social Responsibility

Author: Shanghai Stock Exchange Code Research Center

In our country, a harmonious society has become a new concept of social construction, and the development model that emphasizes the economic growth rate unilaterally is gradually being replaced by a sustainable growth model that takes into account the balanced development of the environment and society. In this context, corporate social responsibility is gradually rising, and the relevant legal system is becoming more and more perfect. Article 5 of the new "Company Law" that came into effect on January 1, 2006 clearly requires companies to engage in business activities and must "undertake social responsibility", that is, the company should deal with its employees, creditors, suppliers, consumers, and residents of the company's location , The natural environment and resources, national security and the overall development of society bear certain responsibilities. In addition, newly revised laws such as the Bankruptcy Law, the Environmental Protection Law, and the Labor Contract Law have also introduced a series of institutional innovations in emphasizing corporate social responsibility.

However, because China is in a special period of economic and social transition, corporate governance mechanisms need to be further improved, and the awareness and concepts of corporate social responsibility need to be further cultivated. Therefore, listed companies still have some problems in fulfilling social responsibilities, which can be summarized in detail For the following five points.

First, although relevant Chinese government departments, securities regulators and self-regulatory organizations have taken various measures to protect the legitimate rights and interests of small and medium investors, the relevant legal system at the macro level needs to be further improved, and listed companies at the micro level The governance structure is still not perfect, so listed companies' behaviors that damage the rights and interests of small and medium investors still occur. For example, the transmission of benefits to large shareholders through connected transactions, or selective and unfair disclosure, has caused serious asymmetry in information between small and medium investors and large shareholders, and between the company and the public investors, leading to small and medium investors. Damaged rights.

Secondly, in the production and operation activities, enterprises rarely consider the vital rights and interests of employees, and employees' participation, supervision and sharing rights in the development and operation of the enterprise are not effectively guaranteed. According to a 2007 Shanghai Stock Exchange sample survey of 135 listed companies in the Shanghai Stock Exchange, 77% of listed companies have no employee representatives on their boards of directors, while employee representatives on the board of supervisors have not reached one-third, as high as 59.2%.

Third, due to the influence of the defects of the traditional planned economic system, the old legal system and the corporate governance mechanism, the protection of creditors' interests has been greatly weakened in China. Corporate bankruptcy applications need to be reviewed and approved by the competent authority, and creditors often become de facto outsiders in bankruptcy proceedings. Especially under the protection of local governments, bankruptcy fraud is difficult to be corrected and investigated, which severely limits the impact of banks on insolvent debtors.

Fourth, the capital market and product markets have not yet formed a strong constraint on corporate environmental governance. Citizens and non-governmental environmental protection organizations are not enough to participate in environmental decision-making and supervision, resulting in indifferent environmental awareness of listed companies. Except for a few large enterprises, currently Listed companies have relatively low expenditures on environmental governance, and major environmental pollution incidents involving listed companies occur from time to time.

Fifth, in general, most domestic listed companies have weak public welfare responsibilities, especially in terms of charitable donations, and some listed companies have performed indifferently. Nearly 90% of the companies surveyed donated less than 1 million yuan in 2006, and even 40 listed companies donated zero.

The above situation is directly related to the following two factors.

First, China's current institutional environment for corporate social responsibility is still incomplete. Under the government-led economic development model, local governments take the pursuit of high GDP as their primary responsibility, and corporate social responsibility actions such as improving corporate environmental governance and paying attention to the legitimate rights and interests of employees often run counter to the goal of maximizing local government GDP growth. On the other hand, although the legal system related to corporate social responsibility has been gradually established, the specific implementation and implementation of laws still need to be further improved.

Second, the market has not yet formed a strong constraint on corporate social responsibility. From the perspective of the product market, the ranks of the domestic middle class are not strong enough. Although consumers' awareness of social responsibility has increased, they have not yet formed a powerful force to resist products and services produced by companies that seriously violate their social responsibilities and purchase strictly in compliance with them. Products of social and environmental standards. From the perspective of the capital market, whether listed companies should fulfill their corporate environmental responsibilities has not yet attracted sufficient attention from investors and analysts. The value investment pursued by the market only focuses on the financial (or economic) performance of the company and does not limit the company's performance. Social, environmental and ethical performance as one of the basis for investment decisions.

Based on the current status and existing problems of domestic listed companies in fulfilling their social responsibilities, this report makes the following six recommendations.

First, actively guide enterprises to actively accept corporate responsibility. Relevant functional departments can strengthen contacts with international organizations, foreign government agencies and non-governmental organizations, understand the content, standards and latest developments of corporate responsibility concepts, provide relevant information to domestic enterprises, and strengthen training on corporate corporate responsibility concepts.

Second, strengthen the comprehensive assessment of corporate social responsibility. Relevant government departments should advocate a new evaluation system to concretely and systematically assess the company's shareholder responsibility and social responsibility assessment indicators. Consideration may be given to revising the Guidelines for the Listed Company's Articles of Association, the Guidelines for the Governance of Listed Companies, and the Listing Rules to force listed companies to disclose information on their corporate social responsibilities, including major environmental and social risks.

Third, institutional investors are actively encouraged to incorporate socially responsible investment into the value investment philosophy. When advocating for institutional investors to make value investments, institutional investors should be encouraged to pay more attention to the corporate social responsibility of listed companies, and to a limited extent refuse or avoid investment in listed companies that lack social responsibility. In this sense, timely promotion of socially responsible investment will not only help promote the harmonious development of the securities market, but also help China's socio-economic progress towards a more focused environment protection and sustainable development.

Fourth, implement the relevant provisions of the Company Law on employee participation in listed companies, and formulate corporate social responsibility conventions for listed companies based on the actual conditions of listed companies, and establish institutional arrangements for employee participation in supervision and corporate development. Only in this way, it is possible to further promote the corporate social responsibility and the practices and requirements of employee participation to the whole society and the entire enterprise.

Fifth, promote the construction of relevant legal systems, and ensure the legitimate rights and interests of creditors by improving relevant legislation and strict law enforcement. Specifically, it is necessary to establish a perfect debt repayment protection mechanism and creditor legal relief mechanism, strengthen the company's controlling shareholders and other insiders' debt repayment responsibilities, and form a sound corporate bankruptcy liquidation and reorganization system.

Sixth, improve the level of corporate environmental governance through comprehensive policy measures such as financing, credit, and taxation. For example, the environmental protection status of a listed company should be directly linked to its stock issuance and listing. Once a listed company is found to be polluting and environmentally damaging, the company will not be allowed to refinance for a period of time.

The concept of corporate social responsibility and stakeholders was born in the United States in the early 20th century. By the 1980s and 1990s, this idea gradually affected major global economies and attracted widespread attention from governments, intergovernmental organizations and related non-governmental organizations. In 2004, the Organisation for Economic Co-operation and Development revised its "Corporate Governance Guidelines", expanded the definition of "stakeholders", and clearly put forward requirements for corporate social responsibility such as improving the incentive mechanism for employees to participate in corporate governance and protecting the interests of stakeholders. Subsequently, various countries have successively formulated normative documents such as corporate governance standards or corporate social responsibility guidelines that are in line with their national conditions, and have put forward more specific requirements for corporate social responsibility.

Since the 16th National Congress of the Communist Party of China, under the guidance of the scientific development concept, socio-economic development has presented an exciting new climate. Harmonious society and sustainable development have become the main theme of the new period. With the promotion of domestic social and economic development and the globalization of corporate social responsibility, China has also begun to highlight the company's stakeholders and social responsibility through legislation. In January 2002, the China Securities Regulatory Commission and the former State Economic and Trade Commission jointly formulated and promulgated the "Guidelines for the Governance of Listed Companies", which stipulated that "listed companies shall respect the lawfulness of banks and other creditors, employees, consumers, suppliers, communities and other stakeholders. Rights "," While maintaining the company's sustainable development and maximizing shareholders' interests, listed companies should pay attention to the welfare, environmental protection, and public welfare undertakings of their communities, and pay attention to the company's social responsibility. " Article 5 of the new "Company Law" that came into effect in January 2006 also clearly states that "A company must comply with laws, administrative regulations, social morality, business ethics, honesty and trustworthiness, and accept supervision by the government and the public in its business activities. Social responsibility. "...

Summary

ExecutiveSummary

Chapter 1 Introduction

Chapter 2 Outside Investors

Chapter 3 Corporate Employee Relations

Chapter 4 Creditors

5. Customers and Business Partners

Chapter 6 Environment

Chapter 7 Communities and Donations

Chapter 8 Corporate Social Responsibility and Corporate Value

references

Appendix 2006 China Corporate Governance Events