Xu Xiangyi is a Level-2 Professor and Honorary Professor of Shandong University and Doctoral Supervisor of the School of Management. The Professor’s accolades include National Famous Teacher, Leading Talent of the National “Ten Thousand Talents Program,” Special Allowance Expert of the State Council, and Expert of the High-End Think Tank of Shandong Province, and Professor Xu has been a renowned social scientist in Shandong province throughout the 40 years of reform and opening-up. Professor Xu is also Vice President of the Chinese Institute of Business Administration, a member of the First and Second Teaching Steering Committee for Business Administration under the Ministry of Education, and Chief Expert of the Research Base of Corporate Governance of Shandong University, which is the main Humanities and Social Sciences research base of Shandong province.
The 11th International Symposium of Corporate Governance was held at Nankai University from September 25 to 26. It was sponsored by the China Institute of Corporate Governance of Nankai University and supported by the Corporate Governance Research Center of Shandong University. The theme of the symposium was “Response to the Post-Pandemic Era: Green Governance,” and featured in-depth discussions on topics including green governance and evaluation, corporate governance transformation in China, the governance reform of state-owned enterprises, governance of financial institutions and risk prevention, board governance and strategic management, corporate governance and innovation, and emerging governance.
In the morning session of September 25, Professor Xu delivered a keynote speech on “Restructuring and Institutional Innovation: Establishing the Chinese School of Corporate Governance” at the symposium. The Professor addressed the following questions: Why should a Chinese School of Corporate Governance be established? What is the Chinese School of Corporate Governance? How can the Chinese School of Corporate Governance be established?
Why should a Chinese School of Corporate Governance be established?
Professor Xu suggested that such “schools” can be viewed as academic groups with characteristics that reflect the academic traditions of a specific region or nation, or that regard a specific issue as the research object. Schools can be divided into “region-based schools” (including those that are institution-based), “problem-based schools,” or others, according to the reasons motivating their establishment. Currently, no distinct school of corporate governance exists in China. The Chinese company system originated in the pre-machine industrial age, developed in the machine industrial age, and matured in the electronic industrial age. Over the past 200 years, throughout these periods of industrialization China’s economic development has lagged behind that of the West, and the emergence and development of the company system has only recently occurred. In the past 30 years, China has established a corporate system and corporate governance mode and has thus narrowed the gap between it and the West in a short period of time.
The new economy, involving the Internet, big data, and artificial intelligence, will lead to major changes in how we do business. The era of corporate governance innovation has arrived, and its traditional framework, categories, and concepts must be re-examined. Through the application of innovative thinking, new interpretations can help to revitalize the traditional corporate governance paradigm.
What is the Chinese School of Corporate Governance?
Professor Xu pointed out that the construction of a corporate governance system with Chinese characteristics should be based on China’s rich traditional culture and should focus on the reality of China as a nation. It can then reflect the country’s traditions, nationality, and originality, and effectively address the practical problems faced by Chinese companies along with contemporary issues of professionalism in theory and practice.
Professor Xu argued that the establishment of the Chinese School of Corporate Governance is not a complete subversion of current corporate governance theories, nor is it a total denial of the Western corporate governance research paradigm. Instead, the Professor suggested it was, first, an innovative extension of theories and research that takes inclusiveness and cultural integration as the main principles and considers the current practices and demands of domestic companies in the context of this new era, but with distinct Chinese characteristics. Second, the Professor noted that the School can identify the practical problems of corporate governance, and provide an innovative approach that integrates various corporate governance theories. Finally, the Professor proposed that original theories and models of corporate governance that reflect domestic situations can be developed, thus forming a theoretical system and academic approach to corporate governance that considers Chinese characteristics.
Three basic points for establishing the School of Corporate Governance
Professor Xu stressed that the establishment of the Chinese School of Corporate Governance should be based on three main points: good corporate governance, corporate autonomy, and two-way governance.
A. Carry forward the rich traditional Chinese culture: good corporate governance
China’s corporate governance should acknowledge the rich traditional Chinese culture, reveal the complex phenomenon of contemporary practice, and integrate these to ensure that corporate governance in today’s China is effective and representative. Good corporate governance requires integrity, fairness, responsibility, order, and compassion. Classical management theory emphasizes “the improvement of efficiency and the reduction of cost,” while good corporate governance emphasizes “good will in action” and “fairness and justice.” Integrity and fairness means considering the interests of the company’s stakeholders (must be done); responsibility and order refers to being a citizen who can maintain social order and fulfill his or her responsibilities (should be done); and kindness and compassion suggests improvements in social welfare and benefitting others (encouraged and expected to do).
B. The corporate governance pattern in China: corporate autonomy
The significance of autonomy to corporations can be viewed in terms of four aspects. First, the notion of corporate autonomy is theoretically based on self-organization theory. If there is no external intervention, the internal subsystems of a system can self-organize according to specific rules. The theory can reveal how company processes and law shift from a state of disorder to a state of stability and order. Second, company rights are determined by statutory law. As a legal entity, a company can manage its own affairs, which represents its legal rights or status. Although company members can assert their rights, they cannot undermine those of the autonomous organization. Third, the powers companies hold are stipulated in their articles of association. Participation in a company implies a shareholder’s endorsement of its specific provisions including his or her responsibilities in terms of company rights. Finally, companies also derive power from their trust-based relationships. A trustor entrusts property rights to a trustee based on trust, and the trustee manages or disposes of these rights in his or her own name, while the trustor remains the beneficiary or his or her instructions are followed accordingly.
Corporate autonomy should always be respected when disputes are addressed. Shareholder intervention should only be necessary when such autonomy is abused or if the rights of shareholders are affected, and the company is in a deadlock with no way of solving problems through internal procedures. If the articles of association have specific provisions for this type of situation, disputes can be addressed accordingly. Only after all internal solutions have been pursued can shareholders get involved. However, any shareholder intervention that does occur should not infringe on corporate autonomy.
C. Control and balance under the parent–subsidiary structure: two-way governance
Most listed companies in China are listed as subsidiaries of parent companies or groups. In terms of ownership concentration, the limited liability system and the non-overall listing of these companies mean that “two-way governance” involving both the parent company and its subsidiary is the norm. The parent company must exercise limited control over the listed company based on limited liability, but the listed company can strengthen its autonomy and ensure checks and balances are in place regarding the intervention of the parent company. The respective rights and boundaries of the parent and subsidiary companies should be balanced under the principle of “equal rights and responsibilities,” and a transition from “top-down” one-way governance by the parent company to “interactive” two-way governance between parent and subsidiary companies should be encouraged.
Professor Xu suggested that five main factors should be considered when constructing a “two-way governance” system involving parent–subsidiary companies: a reciprocal information disclosure system; a system of inversion of the burden of proof; an ultimate liability system for tracing parent companies; an autonomy strategy for the subsidiaries; and finally, the establishment of an independent auditor system.
Three propositions for the establishment of the Chinese School of Corporate Governance
Professor Xu put forward three propositions for the establishment of the Chinese School of Corporate Governance: (1) Returning to the origins of corporate governance research. Rather than solely considering financial performance, effective corporate governance should acknowledge China’s specific national conditions and historical and cultural background, and thus strive to achieve “compliant operations, restricted power, and balanced interests.” Such factors can be incorporated into a standard aimed at improving the organizational and institutional design of corporate governance, and thus should constitute the logical starting point for the establishment of the Chinese School of Corporate Governance. (2) Innovative corporate governance research methods. Large sets of sample data are typically considered in the empirical research into corporate governance, but a lack of comprehensive data means that many important practical problems cannot be effectively assessed. In addition, data and models cannot always explain the fundamental underlying mechanisms. The Chinese School of Corporate Governance should ensure these mechanisms are explored by encouraging diverse research methods and standardizing the research paradigm. By first examining the “real problem” and the “real scene” in depth, such a School can conduct academic research with a practical outlook, identify the unique practices of Chinese corporate governance, and thus establish what constitutes the unique model of Chinese corporate governance. (3) Establishing a theoretical system in the Chinese School of Corporate Governance. By drawing on the essence of Chinese traditional culture, learning from the experience of Western market economy development, and assessing real company operations based on China’s national conditions, the foundations of the Chinese School of Corporate Governance can be established.
Professor Xu also made it clear that we should actively advocate a policy of “free expression of arts and thoughts.” The Chinese School is not a school of thought, but is based on specific Chinese situations and problems. Scholars are expected to think and innovate independently, to establish and continuously improve the theoretical approach to Chinese Corporate Governance.
