Sichuan This Cottage Medicine To Improve The Corporate Governance Structure

In their process of transition from non-standard enterprise system to modern corporate system, the small and medium-sized private enterprises (SMEs) in China are commonly faced with the problem of how to construct a set of corporate governance systems that best fit themselves. The concept of corporate governance can be understood both in a narrow sense and in a broad sense. In the narrow sense, it is a mechanism for the shareholder to supervise and control the management, i.e., by constructing a system to allocate reasonably the rights and obligations, its object is to deter the management's behaviors deviating from shareholder's interests and guarantee the maximization of shareholder's interests. In the broad sense, corporate governance is not limited to shareholders'control over the management, but concerns the coincidence of interests of stakeholders, including shareholders, creditors, suppliers, employees, government and other stakeholders. The object of corporate governance is to realize interest maximization of not only stockholders but also creditors, suppliers, employees, government and other stakeholders, i.e. value maximization of the corporation.This thesis first reviews the literature on corporate governance, and points out the characteristics of governance structures of SMEs, and then studies the issue of how to improve the corporate governance and put forward a solution for Ben Cao Tang Pharmaceutical Co. by utilizing the related theories. Although Ben Cao Tang is a limited corporation in legal sense, it has never built a standard corporate governance system from the beginning, and the lack of governance systems results in defects such as inflexible institutions, shortage of talents, aging of management and so on, and the recent stagnating of sales.In fact, Ben Cao Tang's constructing corporate governance is a systematic reform in its transition period. From the consideration of their long-run interests, its present shareholders, 11 individual shareholders and one corp. shareholder, are for the system reform. However, since the reform means the immediate loss of direct control over the enterprise and according private benefit, the key to the success of the reform lies in design mechanism to mitigate the principle-agent problems and protect the interests of the present.For the purpose of protecting interests of founding shareholders, this thesis puts several protecting measures, namely the chairman being appointed from the founding shareholders, shareholders'participating in managing through legal procedures, the incentive scheme of the chairman of the board of directors and mangers, and a special stress on the role of supervising board. In addition, the consulting committee is designed to perform the function of a platform for the founders to release further their human capital.Finally, this thesis applies institutional economics to analyzing the improvement process of Ben Cao Tang's corporate governance, arguing that Ben Cao Tang's perfecting its corporate governance is in essence an intuitional innovation after it develops to a certain stage. The direct driving force of the innovation comes from the shareholders'dissatisfaction about the quo status of management, their crisis senses and the desire to enlarge and develop Ben Cao Tang.