Research On Enterprise Strategic Failure Based On Corporate Governance Theory

Enterprise development is a general concern and everlasting enterprises are always rare. Strategic failure is one of the important forms of enterprise risk. It often leads to long-term business trough, and even bankruptcy. Traditionally, scholars have laid more emphasis on external factors and making of the enterprise when analyzing the reason for its strategic failure, thus they concerned more about the market trends, technical innovation, global competition, cultural difference, corporate human resources and leadership. This train of thoughts has the merit of connecting the enterprise to the external environment, and observing the enterprise from a large and systematic view; while it has the shortcoming of neglecting the internal arrangement of the enterprise, simplifying the classification of enterprises into low-ability and high-ability ones, and ignoring the influence from internal factors. Strategic management is the core of enterprise management. If we comprehend the external disadvantages as"natural disaster", then the corporate governance imbalance is the"man-made disaster", which presents in the enterprise as conflicts within the deputy relations, contradiction in the contract relationship, and damages to the internal interests. While the personnel conflicts in management can decrease the managerial efficiency, the stake-holders'conflicts in corporate government can cause disasters of strategic failure.The article analyses strategic failure issues of our enterprises from the angle of view of corporate governance, and further uses the production and conclusions to discuss the construction of corporate governance system for our enterprises. In contrast to western enterprises, our enterprises are still in the stage of exploring and transforming corporate governance. It is a necessary issue to develop an innovative method and system of strategic risk control under the specific conditions in China. Thus, this article uses the basic triangle structure of strategic failure, corporate governance and optimization measures, while the first is the phenomena this article concerns, the second is the angel of analysis, and the last is the practical use of the research.The research theoretically discusses the strategic risk management from the perspective of the internal governance, and provides the case studies on corporate governance structure and optimization measures. With the instruction of corporate governance theory, the article integrates strategic management theory, organizational theory and game theory, and makes the theoretical developments of the following:1. This paper analyzes the behavioral patterns of the three tiers of corporate governance, namely the shareholders, the board of directors and the management and reviews the power control and the supervision control relations of different stakeholders. In the study, this paper introduces variables of share concentration, the difficulty of board admittance and the independence of supervision in analysis and verification. The study finds that different stakeholders use different strategies to maximize their own interests in corporate structures with different variable feathers. The corporate structure decides the extent to which the principals are interacted and the methods of influence.2. This paper summarizes the following characteristics of strategic failure risk in corporate governance environment: the multi-level deputy relationship determines that no one of the stakeholders can master all the strategic information; the perfection of single-level of corporate structure cannot eliminate the overall corporate strategic management risk ; strategic failure risk often arises when a single stakeholder dominates the strategic management system while his own interests and the corporate strategic interests conflicts.3. Based on the analysis of the influence of internal governance system to strategic management, the paper suggests that enterprises should lead the strategic game between stakeholders through internal governance integration mechanisms, thus to reduce strategic failure risk, and proposes several mechanisms to optimize each level of the stakeholders'governance. The paper introduces the concepts of the controlling power and the supervisory power, and analyzes how these two elements influence the behaviors of stakeholders. The paper argues that the internal governance and balance ability is the fundamental guarantee for stable strategy. Constructing the qualifying internal governance system can improve the integration of strategic information, thereby reduce the strategic risk and reinforce the strategic risk management ability.This paper combines theory studies and case studies of three typical enterprise case analysis, uses inductive interpretation and comparative analysis, and obtains main conclusions of the corporate strategic failure under the conditions of China's Transition Economy:1. Shareholders are short of a restriction-and-balance mechanism. For state-owned enterprises, the final managers of the assets are holding the absolute majority of shares and indifferent to asset efficiency. For civil enterprises, the enterprise under control may just be a chessman on board, which means its strategy can be scarified for exchange for holding companies'interests. Different information advantages cause different supervision costs. Large costs can cause the shareholders to waive the supervision rights, which may be acquired by other stakeholders like managers, so even dispersive shareholder structure may go through strategic failure. The healthiness of external supervision regulation can influent the strategic participation of shareholders, since it directly influents the interest expectation of shareholders.2. The board of directors is short of control to the strategic decision flow. The board is small in scale and can be easily controlled by majority shareholders. Once they control the board, the majority shareholders will enhance the entrance barrier. Thus, the core of optimizing the board of directors is to ensure lower entrance cost for stakeholders beside the majority shareholders. Moreover, independent director system and committee system, which should be kept independent, can keep the board of directors efficient.3. The intrinsic interest of the manager may distort his managing behavior. Strategic performance valuation standards may be short-term and cause short-sighted behavior of the manager; avoiding mistakes and ensuring vested interest may cause the manager's herd behavior and lag of strategic decision and execution; and the expansion of the manager's controlling power may reversely control the strategic decision-making process and cause the internal corporate governance situation. The solution lies in a mechanism that makes the expectations from the manager and the enterprise in alliance, a supervision mechanism that is independent and overawing, and an internal auditing system with higher level of purview.The main contributions and creativities of the paper are:1. The paper provides a brand new angle of view to research the strategic failure issue. Previous literatures rarely concern about the internal corporate governance structure but only the external factors and the making of the enterprise. The paper deeply digs into the corporate governance structure for the reasons of strategic failure and achieves certain breakthrough.2. The paper observes the connections between corporate governance and strategic failure through the three tiers of shareholders, board of directors and the managers, reveals the relationship between corporate ownership, residual rights, controlling power and the supervision power, and provides theoretical guidance and new thoughts to optimize the corporate governance mechanism. The paper uses mainly the game theory and information economics theory to study the behaviors of the strategic participants and reaches many important conclusions, which are meaningful to our enterprise reform.3. The practical meaning of the paper is to provide suggestions for Chinese enterprises to improve their internal corporate governance to prevent the risk of strategic failure. The paper chooses three typical cases to do empirical analysis, and reveals the reasons for their strategic failure in the Transition Economy. Moreover, the paper provides optimization plans for the division between the controlling power and the supervision power from the realities of strategic failure for our enterprises.