The Fundamental Dilemma And Solution Of Corporate Governance

The noisy dispute case between the shareholder and the management ofthe Gome Company in2010is basically settled. However, the discussionon the legal questions, especially the corporate governance questions,which aroused by this case will definitely make an important influenceon the development of China’s company law system.Superficially, the Gome dispute case is the conflict between thestrong shareholder who owns the firm ownership and the management who havethe firm governance right. Actually, with the development of modern firmsbecome larger scale and higher specialization, the shareholders of thefirm have no enough energy and ability to carry out day-to-day managementof the firm. As a result, they have to transfer the governance right tospecialized managers. Therefore, the separation of the firm ownership andgovernance right comes true.An absolute consequence of the separation of the ownership andgovernance right is that, the shareholder as a principal and the manageras an agent makes principal agent relationship. Like any other theory,the principal agent theory also has its own shortage: the moral hazardproblem. In order to solve this moral hazard problem, the corporategovernance structure has gradually formed three different types of mode.Traditionally, the board of shareholders is the power center ofcorporate governance in the board of shareholders mode. Board of directorsis just an agency of the board of shareholders. But this kind of mode alsohas disadvantages such as poor flexibility and low management efficiency.The mode of board of directors, however, chooses the board of directorsas the power center. In this kind of mode, the board of shareholders has little rights while most of the governance rights belongs to the boardof directors. The stakeholders’ mode has not formed a useful basic theoryyet. This kind of mode just builds some logic relations which provide thestakeholders with the right to share corporate governance.Overall, each of the corporate governance structure models has itsown strengths and weaknesses. The China’s company law chooses the theboard of shareholders mode, we should insist on this kind of mode as itbetter benefits the development of China’s corporate governance. As thecompany law of our country has shortages such as strong rigidity and lowenforceability, we ought to learn good points from the other governancemodes, and then improve our company law system. The final target is thatChina’s company law system can better meet the legal demand of corporatemanagement.