A Study On Corporate Governance Transition Of Private Firms--Theoretic Framework And Its Applications To Management Practice

It is well known that ownership and management are tied together in private firms controlled by their founders. For some unavoidable problems such as succession or financing, however, these firms cannot avoid to face the transition from classic corporate governance to modern corporate governance. That means these firms cannot but separate their management from ownership. This paper will discuss the corporate governance transition of private company in China.There are two opinions on private company's corporate governance transition in current China. One is called normative view, and it claims that classic governance is so inferior to modern governance that firms should transfer it to modern governance; another is called explanative view, and this view considers that most private firms are still locked in classic governance, and this phenomenon is not a random result and has its profound economic ration logic. Kin-based culture traditions, Lack of social trust, incomplete legal system and so on maybe the important factors which result to classic governance.Normative view is lack of logistic persuasion. Following explanative view, however, will draw a passive conclusion - firms will attempt and accomplish nothing on corporate governance transition, since culture tradition, social trust and legal system can't be changed by a single firm. But some private firms did change its governance structure successfully. Therefore, it is necessary to rethink explanative view. This paper is doing this work now.This paper considers that separating management from ownership would bring more benefits to firm and more governance costs synchronously for agency problem emerging. It is determined by balance of costs and benefits whether a firm should separate its management from ownership. In general case, the benefits of ownership-management separation can be seen as fixed (although it also has probability to change over time), so the costs of separation is the key factor should be considered for separating management. According to the latest achievements from corporate governance studying, this paper claims that the level of separation costs is determined by external environments (including legal system) and internal monitoring & controlling from the business proprietor. Although firms cannot change external environments, they also can take some positive action for separating management from ownership. This paper also makes some benchmarking work by studying some companies which succeeded in governance transition, and discusses some steps to reduce the marginal costs of monitoring and controlling, thereby provide a realistic approach to private firms' governance transition. This paper insists that theory oforganizational architecture provide a suitable analytic framework to improve internal governance quality for separating management from ownership.Owing to modern business education tend to pay much attention to theoretic, this paper emphasizes theoretic framework especially. As a paper dresses in business practice, however, the paper didn't forget to provide a real case, although some works in the case are not finished.