Research On Corporate Governance Structure Of China Electric Power Listed Company

In recent years, especially after the financial scandals of some large enterprises such as Enron and World Com, both theorists and industry practitioners became more and more interested in the issue of corporate governance. Improving corporate governance has been widely considered as an effective way to guard against crisis and to achieve sustainable development for a company. As the most important organizational structure of modern enterprise system, corporate governance is the top-level design of related systems and mechanisms to effectively supervise and control a company. Governance of shareholders, board of directors, board of supervisors and the management are core parts of the corporate governance theory and has become a hot topic for both theorists and practitioners over recent years.The corporate governance of Chinese companies has its unique characteristics, and it is more so for companies in the electric power industry which is essential to the national economy and people’s livelihood. Accounting for a large proportion of China’s state-owned companies, electric power companies share common features of state-owned companies that dominate key industries of the national economy. Since 2000s, though progress has been made in the reform of electric power system, problems emerged in the operation and management of electric power companies that call for proper solutions. In practice, there are some major defects in the corporate governance structure of listed electric power companies. Such problems include the phenomena of single large shareholder that holds highly concentrated ownership and absolute control of a company. This is likely to result in "transfer of benefit" and intervention into daily operations of the listed companies at the cost of undermining interests of small shareholders. Problems also include inappropriate composition of board members, directors being ineffective in fulfilling their duties, and inadequate supervision by the board of supervisors. The intrinsic defects of corporate governance structure of electric power companies and the lack of reform measures posted headwinds to the development of electric power market in China.It is required at the Third Plenary Session of the 18th Central Committee of the Communist Party of China that those state-owned and operated companies in the monopoly industries need to take reform measures such as separating government functions from company management, separating the governance role and the capital owner role of the government, and promoting franchising. On March 15,2015, the CPCCentral Committee and State Council issued "opinions on further deepening reform of electric power system", which indicated that it is an urgent task to deepen the reform of electric power system, which has a big bearing on China’s energy security as well as economic and social development.The target of the electricity system reform is to establish and improve a market system that features the separation of government functions from company management, fair competition, reasonable pricing and effective supervision. The reform efforts aim to reduce electricity costs, rationalize price formation mechanism, break monopoly and lift market entrance restrictions on competitive business in an orderly manner in order to diversify supply, adjust industry structure, uplift technological capabilities, and control total energy consumption in a bid to make energy utilization safer, more reliable and more efficient, and to promote fair competition and energy saving.The "Major tasks of the Central Leading Group for Overall Reform in 2014", and the "Notification of Feedbacks by the State Council on the National Development and Reform Commission’s Key Tasks of Deepening Economic Reform in 2014" have proposed new mission and requirements for the reform of electric power system. The aspirations from the general public to accelerate the reform of electric power system have been mounting up, providing a favorable external environment and laying a solid foundation for the reform endeavors. The author of the paper believes that the reform of electric power system is inevitable and the establishment of a well-rounded corporate governance structure is vital to restart and push forward such a reform. In this regard, solutions include boosting mixed ownership to optimize ownership structure of listed electric power companies, promoting standardized operation of board of directors in listed electric power companies, clearly defining the role of board of supervisors in listed electric power companies, and setting up an effective way of recognizing property rights for human capital and technological capital by allowing management to have equity ownerships.The paper takes stock and reference of related basic theories of corporate governance home and abroad and uses quantitative models such as regression analysis model and data envelopment analysis model to conduct theoretical and empirical analysis on corporate governance of listed electric power companies in China from four perspectives including those of shareholders, board of directors, board of supervisors and the management. Building on the analysis, the author offers suggestions on how to improve corporate government of listed electric power companies in China. The paper states that given the market conditions and the problems electric power companies are now faced with, the issue of corporate governance requires adequate attention after electric power companies undertake shareholding reforms. In Chapter 2 and 3, the author made in-depth research on the theoretical basis of corporate governance structure, overviews of electric power companies in foreign countries, the market environment and challenges for electric power companies in China, and the evolvement of corporate governance structure of electric power companies in China. The paper uses data for corporate governance of electric power companies in China from the economic and financial database, and conducted theoretical and empirical research on corporate governance structure from the perspectives of four major stakeholders, namely shareholders, board of directors, board of supervisors and the management. In each Chapter, the author starts with introducing theoretical basis for the analysis, and then explains problems in the corporate governance structure of electric power companies in China before summarizing related research findings home and abroad. The paper then uses quantitative analytical methods including data envelopment analysis and regression analysis that cover such steps as making theoretical assumptions, selecting variables, setting up models, estimating parameters, and verifying assumptions to make empirical analysis on related data of listed electric power companies. In Chapter 8. the author touches upon the topic of external governance, adding a new perspective to the discussion of comprehensive governance and makes the paper logically well-rounded. In Chapter 9, from the perspectives of State-owned Assets Supervision and Administration Commission, National Development and Reform Commission and the Ministry of Finance, the paper makes suggestions that the mixed ownership reform for electric power companies should be speeded up as an opening to the overall reform of the electric power system.Based on previous research findings, the paper makes in-depth analysis of China’s electric power companies, especially those listed companies by conducting field studies to power grid companies, power generating companies, and the National Energy Commission, and aims to make research innovations on the following three aspects.I. The paper aims to create a new theoretical framework of comprehensive and joint governance for electric power companies. To make innovation on the theoretical research of corporate governance, the author starts from the research on internal governance and spread it to external governance, thereby covering all components of corporate governance structure of electric power companies. Instead of making scattered and one-sided research, this paper helps establish a well-rounded theoretical system for analyzing companies’ corporate governance structure especially those of electric power companies with their unique industry features. Thanks to its field study and empirical analysis, the paper offers quantitative and practical decision-making assistance with regard to restart and promote the reform of electric power companies from the perspectives of the State-owned Assets Supervision and Administration Commission, National Development and Reform Commission and the Ministry of Finance. The paper also endeavors to analyze the problems and solutions of corporate governance of listed electric power companies in a quantitative manner, thereby avoiding the problem of ignoring practicality in the research. More importantly, based on theoretical and empirical research, this paper suggests that, through establishing standardized mechanism of three groups of stakeholders, namely shareholders, board of directors and board of supervisors and four rights, namely ownership rights of investor, legal person property rights, supervisory rights of investor, legal person agency rights, efforts should be made to implement mixed-ownership reform, promote diversification of property rights of electric power companies, improve incentive and constraint mechanisms for electric power companies, and improve corporate governance structure as an opening to restart and speed up the reform of electric power system. Such analysis provides reference to the joint efforts by the State-owned Assets Supervision and Administration Commission, the National Development and Reform Commission, the Ministry of Finance and the National Energy Commission to re-launch and promote the reform of electric power system that has been in a halt for years.Ⅱ. On the innovation of research methods, the paper creatively establishes and implements the "DEA-OSL two-phase model" to explore a quantifiable and practical approach of analyzing the quality of corporate governance of electric power companies. The author carried out in-depth and quantitative research on a series of issues such as the mixed ownership reform in listed electric power companies, related-party transactions, inefficient and ineffective investments by electric power companies, professional background requirements for supervisory board members, optimum proportion of external supervisors, optimization of equity incentives for managers, and made conclusions and suggestions. The findings will not only serve as valuable reference for listed electric power companies on their efforts to set up and improve corporate governance, but also offer assistance to the decision-making of those electric power companies that plan to embark on shareholding reform or to go public. Specifically, Chapter 4 to 7 make empirical analysis on the shareholding structure, board of directors structure, board of supervisors structure, and the management of electric power companies in China and intend to explore the correlation between the quality of corporate governance and the performance of a company. To evaluate shareholders and the board of directors, the paper measures the objectivity and efficiency of decisions made by board of shareholders by using DEA models to find out whether the listed electric power companies have sedimentary cash or make inefficient investments. If electric power companies indeed made inefficient investments, an OSL model is used to find out reasons for that problem. To evaluate board of supervisors and management, the paper uses DEA model to calculate operation efficiency of the sample companies to decide whether operational inefficiency exists. Building on that, an OSL model is applied to find out specific reasons for the problem of operating inefficiently.