The Study Of Corporate Internal Governance And Strategy

In recent years, worldwide corporate scandals and bankruptcies outbroke frequently. From the2001Enron scandals to the recent financial crisis of the United States in2007-2008, countlesscompanies suffered a major loss because of corporate governance issues. Numerous studiessuggest that corporate governance defect is the root causes of the2007-2008Asian financialcrisis and the U.S. financial crisis. Their main idea is that the defects such as shareholderparticipation channels, accountability of the Board and executive incentive system cannot beproperly resolved in a long period, so that the risk started to brew until outbreak in a largescale, eventually led to the company’s strategic failure. It’s thus clear that the effect ofcorporate governance mechanisms on strategic development of the company itself, and themacroeconomy must not be overlooked. So, how to build a corporate governance mechanismto ensure the company to make the right choice of strategy has become a key academicconcern of strategic management domain.The relationship between corporate governance and strategic behavior presents a verycomplex interrelation, existing researches are still in the exploratory stage. However, undermultidisciplinary research and theoretical perspectives, a wealth of research results has beenobtained. This article will focuses on the internal corporate governance which is divided intothree levels of ownership structure, board of directors and executive incentive, bases onliterature and theoretical research, to summarize existing research results, discover the internalgovernance mechanisms that affect the company’s strategic behavior (focusing on strategicdecision-making behavior), and to finally present the findings a structured way. Also, in the "flourish " basis of the literatures above, based on the Chinese situation, this article willprovide recommendations for Chinese listed companies to establish the of internal governancemechanisms to maintain the effectiveness of its strategy.The research found that the three levels of internal corporate governance mechanisms willhave a direct or indirect impact on the company’s strategic behavior. The main findings arereflected in:(1) Ownership structure determines the company’s strategic decision-makingbody, which determines whether and when the board of directors and executives incentivemechanism can play a role of governance, then influence the strategic behavior. According todifferent ownership concentration, in this paper, the influence path can be divided into threekinds;(2) Board of directors developing strategic decision function directly is a breakthroughin its governance role. There are three levels of limited, intermediate and high involvement in strategy. A highly involved Board can participate in strategic decision-making process thougha highly interaction with the executives and affects the formation of strategic alternatives byexpert skills, finally influences the final strategic choice by board politics.(3) Executiveincentive is an important tool, for the equity-based explicit long-term incentive andreputation-based hidden long-term incentive can help executives to pay more attention topromote long-term goal and make the right strategic choice.(4) Based on Chinese situation, inorder to make the influence of internal governance mechanism on strategic behavior towardsthe positive development, we put forward several policy suggestions, including:1) We shouldcontinue to promote the reduction of state-owned shares, increase legal person shareproportion, improve our legal and institutional environment, to optimize the ownershipstructure of listed companies;2) We must make a clear relationship between the Board andthe management responsibilities, build a professional decision-making team, and regulate thestrategic decision-making process of the Board to manage the Board’s strategic role;3) Interms of executives incentives, thus, what Chinese listed companies need to do is to select theappropriate option incentives, such as performance shares, stock appreciation rights, etc., andto establish a sound reputation incentive system so that executives can be to fully motivated.The results of this study, in terms of the development of corporate governance and strategicmanagement research, have certain theoretical significance. Meanwhile, this article provides auseful guidance for Chinese listed companies to make right strategic decisions and maintainrapid and healthy development.