Corporate Governance Effect Of Nominating Directors' Rights Charter

Corporate governance is a series of institutional arrangements that protect small and mediumsized shareholders from the infringement of insiders or controlling shareholders.At present,the academic literature on corporate governance either focus on external mechanisms such as legal systems,political channels,and market competition,or focus on internal arrangements such as executive compensation contracts,board structure and internal control,etc.In fact,the corporate charter is an effective means of corporate governance and self-protection for small and medium-sized shareholders.It can flexibly set guidelines for internal behaviors and activities in areas that are not prohibited by laws and regulations to achieve corporate governance objectives in specific situations.For a long time,investors and managers of listed companies in China have paid little attention to corporate charter,and have not paid attention to the establishment of the autonomy clause in the corporate charter,which has led to the serious homogenization of clauses in the corporate charter.This phenomenon has improved with the deepening of judicial reform in China in recent years.The “Guidelines for the Listing of Listed Companies” issued in 2006 has relatively reduced the mandatory provisions in the corporate charter,which has strengthened the autonomy function of the corporate charter.In the specific practice of our country,private enterprises pay more attention to the establishment of the autonomous clauses in the charter,and the homogenization clauses are relatively few.Therefore,the scope of this paper is limited to private listed companies.Among the clauses in the corporate charter,the nomination of directors' terms is directly related to company decision-making and corporate governance,and is also an important indicator in the company's charter to measure the level of investor protection.Companies often stipulate in the charter that shareholders must reach the minimum shareholding ratio required to exercise nominate directors right.Shareholders who meet the required shareholding ratio are eligible to nominate director candidates.The lower setting of shareholding ratio means the nominating directors' power is no longer monopolized by major shareholders.The board of directors is no longer subject to major shareholders.The minority shareholders' claims can be answered by the board of directors,which helps to improve the governance of the board of directors,ease the agency conflict between major shareholders and small and medium shareholders,and ultimately bring about company performance improvement.This paper manually collects the data on the nomination of directors' rights of private listed companies in China from 2007 to 2016,and studies the corporate governance effect of the nomination of directors' rights regulations.The study found that:(1)The major shareholder has a tendency to monopolize the right to nominate directors.The more concentrated the equity,the more the company tends to set the shareholding ratio required by shareholders to nominate directors to a higher level.(2)Lower Setting of shareholding ratio required by shareholder to exercise nominating directors' right can improve the efficiency of the board of directors and ease the agency conflict between the major shareholders and the minority shareholders,and ultimately promote the improvement of the company's performance.The lower the shareholding ratio required in the corporate charter,the higher the efficiency of the board,the lower the agency cost and the better the company's performance.(3)Through further research on the interaction effect of nominating directors' terms and other major corporate governance variables,it is found that the nomination of directors' clause in the corporate charter exerts the effect of corporate governance by strengthening or weakening some other corporate governance mechanisms.The research in this paper has great significance both in theory and practice.On the theoretical level,the research in this paper enriches the research on the corporate's charter autonomy,corporate governance and the protection of minority shareholders' rights and interests.At the level of practical guidance,the research of this paper provides empirical evidence for small and medium-sized shareholders to use the company-level charter to protect their own rights and interests,and provides solutions to solve the problem of the lack of protection of minority shareholders' rights and interests in the current market.