Research On The Powers Of Shareholders And The Board

The separation of ownership and management is the inevitable because of economic development. It also produces the subject of corporate governance. So it is important that how to distribute corporate powers. Its main purpose is to solve problems of corporate governance. The patterns of distribution of corporate powers mainly include shareholders primacy and the board primacy. The above both admit that shareholders are the owners of the corporation and they can decide the major issues. The board has the right to make decisions about businesses. The divergence between the above both is the boundary of power allocation. The boundary of major events and business matters is not so clear. We should make sure that which has the priority rights of decision-making, rather than which has bigger powers. Hostile takeovers have great significance. Because the control right of the target company will be transferred, or the corporation may be cancelled. Hostile takeovers relate to the immediate interests of the shareholders and the operation of corporation. Therefore, the author discusses the distribution of power between the shareholder meeting and the board of directors.According to the agency theory, shareholders are proprietors of the corporation. But it is impossible to do businesses themselves. So tthey entrust authorized director to be responsible for the company’s operations. In order to reduce the agency cost between shareholders and directors, and make sure directors keep up with shareholders, it produces the power distribution pattern of shareholders primacy:the center of the power for the corporation are shareholders. They make business matters entrusted to the board of directors, but the board of directors shall be acting within the scope authorized by the shareholders. They follow the rules for "principal-agents ". It denies the board of directors has independent rights of management decision-making. With the development of size of the company, shareholders are numerous. So shareholders’decision-making is faced with the problem of low efficiency and high costs. In order to fit in with the needs of the society, and efficiency and professional demand of the decision-making, it produces the contract theory. Guided by this theory, the board primacy arises at the historic moment. It acknowledges that shareholders are the company’s owners and have rights to the important matters. We should pay attention to the independence of the board’s rights to decision-making. But the board must maximize benefits of company and shareholders.In the above two patterns of corporate governance, shareholders can make significant decision, and the board of directors has the right to businesses. Shareholders and the board of directors do their own jobs, but the problems will appear in the corporate governance practice. What are important matters? Under the board primacy, can the shareholders participate in the important business matters which belong to the board of directors? If we discuss it in general, the differences between the two patterns are not clear. We can take advantage of hostile takeover to analyze the priority of the shareholders primacy and the board primacy. The author selects legislation and practice of the United States and China to do researches. Finally the author confirms that the American board of directors in these matters not only can take defensive measures forwardly, but also can be approved by the shareholders’meeting to take defensive measures, and the possibility of the shareholders’committee approval is extremely high. The board of directors enjoys independent business decision-making. For major businesses, the board also has the priority to decision-making in the America. In contrast, legislation and practice of acquisition of listed company in our country, the board of directors has no right to decide whether to take defensive measures to hostile takeovers. This decision must rely on the shareholders’general meeting resolution. Legislation and practice permit that shareholders are the center of power distribution, and the board of directors is controlled by shareholders. In our country, shareholders not only have the right of priority, but also the right is decided.Considering the relatively concentrated structure of equity in our country, and many listed companies have experienced restructuring of state-owned enterprises. The phenomenon of large shareholders control is serious. However, there is no guide in legislation in our country. Therefore, the board primacy should be adopted in the legislation of our country. In order to achieve the objectives of the corporate governance, we must limit the powers of shareholders, and expand the powers of the board of directors, meanwhile, improve the mechanism of corresponding obligation responsibility and supervision.