The Influence Of Management Power On The Sub-committees Of Board Of Directors

It is judged by whether duties performed by special committees of board of directors are complying with the Code of Listed companies,that the duties performed are effectiveness.But the Code of Listed Companies of China is not update for a long time.It is issued in 2002.The two Laws that it issued according to are changed.One of that two laws is Company which is amended in December 28,2012.The other one of that two laws is Securities Law of the People's Republic of China which is launched amending on December 10,2013.Those best practices which when the code issued consulted to also changed more detailed,more operational,more specifications and let the protection of the interests of shareholders easier.The research on the influence of the power of management on the effectiveness of governance of the committees of board of directors is under these settings.This research starts with the point of management compensation and is based on best pay contract theory and management power theory.The core of best pay contract theory is strengthen the sensitivity of management compensation on corporate performance.Management power theory is used to analyze the phenomena which are conflict with the best pay contract theory.Pay contracts is unable complete,and it is the power of management cause the management compensation has the dependence on earning manipulation.The performance sensitivity and the earning manipulation dependence of management compensation can be used to judge the governance effectiveness of pay committee and audit committee of board of directors.Through investigating management power,we can know whether the management have the power of compensation self-set,financial statements overseeing,director nomination and autocrat this is the highest power according to whether the management is a member of pay committee,audit committee,nomination committee and be chairperson and chief executive officer.There should have governance mechanism to balance the management power.Third of the members of board of directors is independent director is the balance mechanism according to Guidance on Establishment of Independent Director System in Listed Companies released in 2001.The effectiveness of this balance mechanism needs test.A series of empirical tests are done centre on the influence of management power on the governance effectiveness of pay committee and audit committee using a data of Chinese A-share listed companies from 2008 to 2011.The results of empirical tests are as follows:(1)There are two evidence indicate that it has harmful influence on the governance of pay committee when Chief Executive Officer has the power of compensation self-set.One is the power is used to reduce the performance sensitivity of management compensation when the owner is non-state legal person.The other is the power is used to increase the level of management compensation;The governance effectiveness of pay committee depended on the owner's ultimate property of control shareholder.Management compensation's performance sensitivity is not stable.Pay committee governed effectively when the owner be state legal person or non-state legal person,but not effectively when the when the owner is natural person.(2)There are two opposite evidence indicate that it has influence on the governance of audit committee when Chief Executive Officer has the power of oversight financial statements.It has positive influence when the owner is state legal person and it also negative influence when the person is natural person.The former may be an anomaly because there is regulation on state management compensation,and the latter may reflect the basic rule that the management power of oversight financial statements has bad influence on the governance effectiveness of audit committee;Audit committee has the governance effectiveness only when the owner is state legal person.Management compensation has dependence on earnings manipulation except for the owner is state legal person;(3)There are evidences indicate that it has harmful influence on the governance of pay committee when Chief Executive Officer has the power of director nomination.The power was used to increase the level of compensation and reduce the performance sensitivity when the owner is state legal person or non-state legal person.There are also evidences indicate that it has harmful influence on the governance of audit committee when Chief Executive Officer has the power of director nomination.This is indicated by the increase the management compensation's dependence on earnings manipulation when the owner is natural person,or when the corporate performance is on the decline;(4)When the same individual exercises the roles of chairperson and chief executive,the person will has unfettered powers of decision.Unfettered power easily used to get absolute interests,such as management compensation with the welfare nature and not affected by performance,and used to manipulate upward earnings which dependent by higher management compensation.This is indicated by that management compensation performance-sensitivity down and the earnings-manipulation-dependence up;(5)Management powers of decision need to be restricted.There should has mechanism to balance management power.Such as dependence increased balance mechanism of Singapore,it requires that at least half the board should comprise independent directors.In China,balance mechanism of Singapore is effective because it can increase the management compensation performance-sensitivity up and reduce the dependence of earnings manipulation down,and this means that it increase the governance effectiveness of both pay committee and audit committee.The dependence increased balance mechanism can also effectively balance the inappropriate management power.