| From the point view of the origin of the theory, Corporate Governance emerged after the separation of ownership from control power."Corporate governance is a kind of institutional arrangement of all the laws, institutions, contracts as well as corporate culture concerning pattern of organization, controlling mechanism and profit-sharing system between a company and such stakeholders as stockholders, managers, creditors and employees."Yu Qun has written in his"Study and Research on Corporate Governance".Presently , the scholars at home and abroad have concentrated on studying theoretical and practical affairs of modern corporate governance, and written a great deal of research literature which would have paved the way for practice of corporate governance and given a guidance to it. However, the author noticed that ,in terms of domestic research about it, no matter what theoretical basis of research or theoretical results accepted extensively by people, have mostly focused on the problems emerging from governance structure of listed companies rather than small and medium-sized enterprises.First,"black box"in the governance of small and medium-sized enterprises.China's family firms have had a substantial development over thrity years since it adopted reform and opening up policy. As a result of the existence of stakeholders, people gradually pay attention to small and medium-sized enterprises'governance with its complexity. Compared to small and medium-sized enterprises in European Union countries, China's companies have a unique characteristic of governance on the types of company, stakeholder, and structure of governance together with external governance. That may be why the governance of small and medium-sized enterprises becomes"black box"of theoretical study. We take LSD Company as an example, to explore and study some existing problems in the governance of family firms.Founded in 1992, LSD is a steel manufacturing and construction business. The company was initiated with the fund from five shareholders, who were inter-related by marriage. It mainly produced pressure-type building materials such as steel. As a small and medium-sized Chinese family business in the 1980s and 1990s, LSD had its corporate governance: The strategic decision-making power, the control right on operating, the property right, and the personnel right are all highly concentrated. The company does not have a perfect modern enterprise system.Second, small and medium-sized enterprises in ChinaFor the definition of family firm, the scholars at home and abroad have different views, but generally implied from the aspect of"ownership"and"operation power". Chandler, a famous enterprise historian in America, notes that"family company refers to a company founder as well as his\her close partners and relatives have always shared its most stocks."Bisheng Pan thinks that"a family or several families with close alliance relationship own all or partial shock ownership and have direct or indirect management right of enterprise."Professor Donnelly from Harvard university, emphasized control force and management right transferring from each other among family members. The scholar from Taiwan Yinhua Ye points out that the rate of family members holding stocks in the family firms is greater than that of marginal holdings sharing. The author thinks that as long as a company is under the control of a family visibility or invisibility, we may name it family firm. Most private enterprises in China take the form of organization and management of family enterprise system, which merits the development of a newly-establishing company and small-sized company. However, with market environment change constantly and enterprise enlarge, this kind of enterprise system can affect the enlargement and improvement as well as competition-enhancement of a company.No matter where in developing or developed countries, there are many family firms in our social and economic life. According to the statistics,1/3 of Fortune 500 companies are family firms. In the USA more than 90 percent of enterprises, which create over 1/2 employment opportunities and earn over 1/2 of GNP. But why do so many enterprises at home and abroad conduct such a"low effective"and"backward"system instead of modern company system, which is more effective and growing than the former. The only explanation as Hayek said:"well-competitive economy system results from people's behaviors not plans."It is necessarily reasonable for family firms to exist and develop in the modern economy. Thirty years'development of Chinese family firms witnessed that it has been an important part of Chinese economy. While comparing to family firms in the developed countries, China's family firms meet a lot of difficulties. Almost all family firms are small and medium-sized enterprises. Therefore, how to improve the performance of enterprise has been an important issue in the development of China's nongovernmental economy even the whole national economy.Third, issues concerning the governance of LSD CompanySmall and medium-sized enterprises in China, which have developed from family economy since China adopted reform and opening up policy, started in 1980s or 1990s.Such enterprises without long history have no family firm culture calculation. They only meet the needs of business register. the owner of a company can not distinguish his or her personal assets and company's ones, the interests of the family are often the top priority than some rules of business. the exclusivity to other sources causes that small and medium-sized enterprises cannot effectively integrate social financial capital.Since the reform and opening-up, LSD group rapidly has grown to be a small and medium-sized family business with seizing market opportunities. There are many problems. For example:Trust management mechanism. Without distinguishing the ownership and management rights, the family business developed under the long-term management of the family. As a result, the power was concentrated at the hand of the family members. The professional managers were not fully trusted and authorized after being introduced into the company.The issues of property right. The total properly rights of the small and medium-sized family enterprises were made clear, but the internal ones were not clearly a divided because of various historical reasons. As a result, many problems emerged when the family business developed to a certain extent: The various internal groups'conflict over interests. The emotional relations became complex. The system lost. The corporate governance gave way to the emotional relations. People even take their brothers and fathers as enemies. All these problems resulted from the confusion of internal property rights.The right of succession. As a Chinese saying goes: Great men's sons seldom do well as they have done. This is not unreasonable. McKinney, whose research findings on the family business are that: The world-wide average life span of the family business is only 24 years. Only about 30% of them could last to the second generation, less than 13% of the total could last to the third generation, and only 5% of them could survive beyond the third generation. Therefore, who will be the successors is directly related to the life continuity of the small and medium-sized family business.Building corporation culture. Although the traditional culture of family business is relatively profound, it lacks the modern corporate culture. The disadvantages of its culture were not abandoned. As for the introduction and grafting the advanced cultures, they failed to effectively communicate, digest and make use of them. They can't accept other culture. In addition, the problems such as the narrow channel of financing, has become the bottleneck in the development of the LSD Company.According to the evolution process of western market economies businesses, some scholars viewed that China's small and medium-sized enterprises must move away from family ownership and management in-one-model of governance, establish a modern enterprise system and adopt a mode of common governance by stakeholders. However, the current families of small and medium-sized enterprises need to make great efforts to transform the modern enterprise system. As far as the developmental stage of LSD company, how to adapt to the needs of the economy, how to establish a modern enterprise system, which is key to a bigger and stronger enterprise.Based on previous studies and the current stage of China's actual conditions, considering the corporate governance in a great and all-round way, using the research methods of economic analysis, benefit analysis , functional analysis along with the methods of the draw, using the property rights theory, the principle-agent theory and the theory of corporate governance to deeply study the structure of the governance of the LSD company, which are of great importance to support and develop China's small and medium-sized family businesses.The author make attempts to analyze the problems of stock ownership structure, entrust agency, inner control, entrepreneurial credit economy base, corporate governance culture building, financing channel of LSD Group. Combing with modern corporate governance theories, the author tries to set up effective corporate governance model to promote family firms'sound and sustained development by the methods of separation control force from ownership, dispersing stock ownership structure and to make promotion to sound and sustainable development of family enterprise. |
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