Conceiving Corporate Governance for an Asian Environment
51 Pages Posted: 7 May 2016 Last revised: 25 Mar 2017
Date Written: December 31, 2016
Abstract
Nearly all Chinese corporations are vehicles used by a separate system or social network—such as a family, the state, or a political party. Available data shows a similar pattern in other Asian countries. The challenges presented by the corporation operating as a system within a system are in most instances ignored by the modern business corporation structure and related doctrine. This is just as true under Chinese and Hong Kong law as under that of the US or UK. The dominant model of corporate governance understands the company as a vehicle in which financial investors and operational management coexist for the sole purpose of profit. Other systematic relationships among persons operating the corporation are recognized only as potential sources of power and information asymmetries that exploit financial investor constituencies. This ignores both data on who owns most companies and a deep body of empirical scholarship demonstrating the advantages enjoyed by family enterprises—from profitability and longevity to lower executive compensation and transaction costs.
This paper uses institutional and systems theory tools to begin development of a model of corporate governance dynamics that takes real account of the systems that coexist with the corporate vehicle. It uses the initial examples of the family and the political party to propose a corporate structure in which social networks and value systems can meaningfully communicate with the governance rules of the corporation.
Keywords: Corporate law, company law, comparative law, Asian law, family firms, state owned enterprises, theory of the firm
JEL Classification: G30, K22, L21, P16
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