Discussing On The Improvement Of Internal Supervision Mechanism Of Chinese Company

Internal oversight mechanisms of companies are an important part for the management of every company. From a global perspective, different countries have developed separate internal oversight mechanisms of their own according to their specific politics, economy, laws, history and culture. The internal oversight mechanisms may include three patterns. The first, the independent directors belonging to American-British system (also called Centralized Leadership) which is represented by America; the second, the board of supervisors belonging to continental legal system (also called Binary Leadership) which is represented by Germany; and the third, the co-existence of independent directors and board of supervisors which is represented by Japan and France. Every pattern of them has its own merit. As the companies, especially the listed companies, developing, the three patterns have been improving all the time and each has formed its strong and steady basis in the company management. But the three also show their separate malpractice and defect in the check and balance of power, not only causing losses for stockholders and companies but also bringing harm to the society. Therefore, setting up perfect oversight mechanisms, both in theory and in practice, becomes an urgent task to ensure the management in the legal system.Our present Company Laws, influenced by continental legal system,adopts the board of supervisors (binary leadership). Its basic structure is that the general stockholders'meeting is the supreme authority, under which are the two parallel departments– the board of directors and the board of supervisors– the enforcing and managing departments. As the internal supervise department of the company, it plays a certain role in ensuring that the managers'actions should not go against the interest of the company, stockholders and those who has some financial relationship with the company. Since our legislation has been too simple and short of operability, and since there are some loopholes in our system and some other reasons, the work of the board of supervisors is not satisfactory. After the introduction of independent director system for better supervise, our country has not formed its own specific supervise pattern. Each is not sure of its responsibilities and not clear about their interrelations, as a result, the status of the general stockholders'meeting is weakened. The board of supervisors exists in name only, therefore the independent directors can not be independent.This article, following the example of America, Germany and Japan, carefully analyses the three patterns and the present situation of the internal company supervise in our country so as to offer some useful reference to improve the internal company supervise.Apart from the introduction and tag, this article consists of five parts.Part One Sketch of Internal Oversight Mechanisms of Companies, in which the requirements and characters of the internal oversight mechanisms are summarized, and the production of the internal oversight mechanisms is emphasized. From the point of the complete change of development and running mode, the differentiation of power in a company is analyzed. Also, the principle of separation of powers and balance is analyzed through the theory of agent cost and checks and balance.Part Two the Structure of Internal Oversight Mechanisms of Companies, in which the subject, the object and the content of the internal oversight mechanisms are all discussed. The subject includes stockholders, general stockholders'meeting, the board of supervisors and independent director system; the object includes the directors, the board of directors, managers and some high-ranking administrators; the content of the supervising includes selection of managers and their code of conducts.Part Three the Basic Pattern of Internal Oversight Mechanisms, in which we discuss the production, development, key contents and function mode of the above One Leadership, Binary Leadership and the triangular system which contains both the characters; we are paying more attention to the analysis of their characteristics.Part Four the Present Situation of the Internal Oversight Mechanisms in Our Country, which discusses the selection of our internal oversight mechanism from the point of system, mechanism, institution and powers of the offices, mainly analyzing the existent problems in our country. We are also elaborating the active role played by the introduction of independent directors'system to improve the structure of the manager board in our country and to perfect the internal administrative structure of the legal persons, putting more emphasis on the analyzing the main reasons for inadequate the function of the independent directors.Part Five the Consummation of the Internal Oversight Mechanism, which part is the key of this article. In this part, based on the fact that we adopt both the board of supervisors system and independent director supervision, and from the points of law status, supervisory functions, obligations and the encouragement system, we are exploring the perfection of the board of supervisors. Also we are here discussing the perfection of the independent director system from the respects of completion of legislation, building-up independence, encouraging and restricting mechanisms. We also have searched the main reasons for the inconsistent behaviors of the board of directors and board of supervisors. According to the present situation that we have adopted the two systems and under the present legal framework, the author points out that the key task for our company managing structures is to amalgamate the two systems and specific recommendations. Based on the above research, we now put forth some actual suggestion on how to realize the amalgamation and set up a more scientific, more reasonable and more complete pattern.