Eliminating the Board in Chinese Listed SOEs: Using Anti-Corruption Law as Monitoring Device

Abstract

I begin by asking two questions:Why have independent directors and boards of directors failed to protect minority shareholders in Chinese listed state owned enterprises? Is there a solution to this problem?

Close examination reveals listed SOEs to operate as organs of the Party and the State. Independent directors and boards of directors play little role in governance, nor should they be expected to do so under contemporary circumstances.

The course of these inquiries leads to the conclusion that boards of directors are inappropriate organs in listed SOEs and are inconsistent with the way contemporary Chinese corporate business works. The misdesign of Chinese corporate governance lies in the misunderstanding of Chinese corporations as operationally similar to western corporations when in fact they remain organs of the Party-State. Anti-corruption law, despite its flaws, is a more appropriate monitoring device for listed SEOs than is a board of directors.

This paper concludes by calling for a reversal of normal scholarly methodology in studying these corporations. Understanding should start with empirical research modeling the governance system of listed SOEs in practice. Only then can theorizing and the creation of truly Chinese business enterprises begin.