Profit Sharing And Corporate Governance Structure

Profit-shaving and Corporate Governance StructureThe reform of State-owned Enterprises (SOEs) has been conducted in a step-by-step approach of "Experimenting - Adjusting - Spreading". After more than twenty years' exploration and experiences in the measures of "decentralization and profit-sharing approach", "replacing the submitting of profits with the paying of taxes", "contract system" and "stock corporation system", it was set as the target of SOEs' reform to establish a modern enterprise institution in 1992. While some achievements were made in the SOEs' reform, there appeared some problems, among which the most important one was that the low-efficiency of state-owned-assets (SOAs) had not been solved effectively. The second was the embezzlement of state properties and profits by "insider control". And the efforts to solve these problems often led to the systematical restoration. On further probing into the SOEs' reform, there came to the argument about whether the enterprises should be owned by labor-capital owners or by non-labor-capital owners. Furthermore, the allocation of the residual claims and rights of control was the core of the corporate governance. How to allocate these claims and rights was crucial to improve the enterprises' performance and protect investors' benefits. Referring to the above-mentioned problems, the essay made use of criterion analyzing and positive analyzing approaches, the research achievements in modern corporate theories and practice of profit-sharing approach in other countries' enterprises to dynamically study on the theories of profit-sharing and corporate governance. Meanwhile, the essay analyzed the reform of corporate governance in China on the base of common theoretical analysis in order to push forward the innovation of corporate system and improve the current corporate governance system of China.The essay first analyzed the corporate governance structure from the common theoretical point of view. According to the modern firm theory, enterprise is a nexus of a set of incomplete contracts between the factor-owners, and the course of the implementation of the contracts. The allocation of the residual rights (residual claims and rights of control) arising from the incomprehension of the contracts is the core of the corporate governance. The existence of the incomprehension certainly results in the possibility of renegotiation system between factor-investors, thus bringing an interactive relationship between them into being. Moreover, thanks to the contractual nature of enterprise, the interactive relationship between the beneficiaries of the enterprise certainly leads to the endogeny of corporate governance. As for the corporate governance, we mainly concentrated on allocation of the residual claims and rights of control between the beneficiaries. The essay adhered to the equilibrium approach to the determination on corporate governance to illustrate how the factor-owners trying to maximize their own income and welfare arrived at equilibrium contracts. On understanding the nature of enterprise, the essay analyzed the capital structure of enterprise, and divided it into labor-capital, non-labor-capital and organizational capital. The essay also distinguished capital from assets, and defined the beneficiaries of the enterprise as stock-holders, manager and employees. Enterprise is a contract between factor-owners, and the core of the contract is the allocation of the residual claims and rights of control. With the use of Nash Negotiation Approach and its extended approach., the essay then analyzed the beneficial goals of various beneficiaries and their negotiation process and results. The essay put forward the opinion that enterprise, which is regarded as the implementation of a contract between factors, should not been owned by any particular factor, thus the profit of the enterprise should be shared by all factors. Thereby, the essayillustrated in detail the relationship between profit-sharing and productivity.Following the above analysi...