The Actual Problems And The Countermeasures On The Corporation Governance Of Sino-foreign Equity Joint Ventures

Sino-foreign Equity Joint Ventures (hereinafter referred to as joint ventures) isthe major mode of introduction of foreign capital in the market economy in China.The Law on Chinese-foreign Equity Joint Ventures is the first company law afterChina’s reform and opening up. It stipulates the operating activities of the jointventures, and clearly stipulates the corporation governance of the joint ventures. TheLaw on Chinese-foreign Equity Joint Ventures and the Regulations for theImplementation of the Law on Sino-foreign Equity Joint Ventures stipulate that theboard of directors shall be the organ of authority of the joint ventures, and the generalmanager is the organ of execution, which is totally different from the regulations ofthe Company Law. The Company Law stipulates that the board of shareholders shallbe the organ of authority, the board of directors shall be the organ of execution, andthe board of supervisors shall be the organ of supervision of the company.The company law theory emphasizes the “separation of the three powers”. Thecompany law divides the corporation governance into three branches: the power ofdecision, the power of execution and the power of supervision, restricts each other.This kind of corporation governance is the base of daily management of the company,and it can effectively protect the legal rights and interests of the shareholders and thestakeholders, ensure the long-term stable development of the company. There are lotsof problems about the corporation governance of the joint ventures, which impact the performance, even the development and the survival of the joint ventures.This paper focuses on the actual problems about the corporation governance ofthe joint ventures. According to the actual situation of the corporation governance ofthe joint ventures, the author finds that the root cause of these problems is theunreasonable corporation governance. After the detail analyze of the problems of thepower of authority, the power of execution and the power of supervision one by one,refer to the foreign company law such as German, Japan, America and the UnitedKingdom and the Company Law of China, this paper gives the feasible suggestionsand countermeasures for the corporation governance of the joint ventures.In this paper, the author firstly analyses the organ of authority of the jointventures. No board of shareholders in the joint ventures, the board of directors insteadof the board of shareholders performs the highest authority of the joint ventures; theshareholders cannot express their will, the board of directors and the manager lack ofsupervision, all these factors make the joint ventures tend to be controlled by thecontrolling shareholder especially by the foreign shareholder. The foreign shareholdercontrols the joint venture by means of the share structure, affiliate transaction, keytechnology and employing or dismissing the managers of important departments. So,the Chinese shareholder’s benefit and interest will be harmed, even the benefit andinterest of the joint venture will also be harmed. Meanwhile, the Chinese governmentrestricts the operation of the joint ventures. According to the company law theory, theauthor suggests that the board of shareholders shall be established and give the powerof control, employing or dismissing directors or supervisors and the power ofsupervision to the board of shareholders. And the supervision of the affiliatetransactions shall be strengthened, the control by the government shall be cut down.Secondly, the author analyses the board of directors of the joint ventures. Theboard of directors lacks of independence during the business execution. The generalmanager is the organ of execution instead of the board of directors. The director andthe manager are lack of inspiration and supervision. According to the principal agenttheory between the board of shareholders and the board of directors, the authorsuggests that the function and the power of the board of directors and the general manager shall be adjusted properly. The board of directors entirely executes theresolutions of the board of shareholders; the independent director shall express theindependent opinion; the staff director shall protect the rights and interests of theemployees; and the professional managers to be the general manager to assist theboard of directors to manage the company.Thirdly, the author analyses the board of supervisors of the joint ventures. TheLaw on Chinese-foreign Equity Joint Ventures does not stipulate to set up the board ofsupervisors, which is the flaw of the legislation. The regulations about the board ofsupervisors of the Company Law cannot certainly apply to the joint ventures. Theorgan of supervision implementing the power of daily supervision in the company cansolve the problem caused by the principal agent, can avoid the internal control. So, theauthor suggest that in order to protect the interest of the joint ventures, theshareholders and other stakeholders, the board of supervisors shall be set up and thedaily supervision shall be empowered. And the board of supervisors shall have theright to propose directors and the right of business restriction. The independentsupervisor and the staff supervisor cooperated with the independent director to protectthe rights and interests of the joint venture and the employees.Finally, after completely analyzing the corporation governance of the jointventures, the author raised that the corporation governance of the joint ventures shallbe in line with the regulations of the Company Law. Considering the developmentcondition of China, the regulations for the special circumstances of the joint venturescan be stipulated in the Company Law with special clauses. In order to establish thecomplete corporation governance of the joint ventures and other foreign investedcompanies, for the better development, the corporation governance of the jointventures and other kinds of foreign invested companies can be standardized by theCompany Law, the law of foreign capital shall only stipulate some special issues.