Case Study On Failure Of ESOP From The Perspective Of Risk Management

In 2014,the China Securities Regulatory Commission issued the “Guiding Opinions on the Pilot Implementation of the ESOP for Listed Companies”.Subsequently,the central and local governments successively issued a series of policies to promote the implementation of employee stock ownership.However,at present,the ESOP is greatly affected by market fluctuations.Relevant policies and regulations have only simple implementation guidelines and information disclosure requirements,and they are fragmented and not systematic.As the new round of employee stock ownership is in its infancy,many new problems are often encountered in the implementation of the ESOP.Listed companies lack the practical experience of ESOPs,and they have not established a risk management awareness to implement ESOPs.In view of the above phenomena,this paper conducts a case study and selects Jinlong M & E as the research object.Jinlong M & E Co.,Ltd.is the first listed company to be sued for failing to guarantee the benefits promised by the asset management agreement after the ESOP was closed.Based on the literature review and case introduction,this paper will analyze the risk management of Jinlong M & E Implementation of the ESOP.In the case introduction section,a detailed descriptive explanation is given on the three aspects of the general situation of the ESOP,the overview of the case enterprise,and the implementation of the case enterprise ESOP.On this basis,it analyzes the problems existing in the implementation of Jinlong M & E 's ESOP,including: shareholding method does not meet the requirements,failure to implement income distribution mechanism,leveraged financing to trigger debt service dispute,incentive effect is not up to expectations,incentive target lost heavily.Then,using the employee shareholding plan theory and the risk management theory to find out the reasons for the problems in the implementation of the ESOP,mainly including four points: the risk identification and the risk assessment of the ESOP design is incomplete,poor risk control during the ESOP,lack of communication during the ESOP,and lack of supervision over the risk management of the ESOP.Finally,on the basis of case analysis,we propose targeted recommendations from the perspective of listed companies and the regulatory layer,provide experience for follow-up companies to implement employee stock ownership plans.