Requesting case analysis of corporate governance structure

Corporate Governance Structure

Section 1: From "Shy" to "Sweet" - Guowei Group Executive Stock Ownership Plan Consulting Case

Background Statement

This is a large-scale national secondary enterprise integrating science, industry, trade and finance. Since its listing, the company's economic benefits have increased year by year, and it has been awarded the title of "Big Profit and Tax Owner" for four consecutive years. It is not only famous locally, but also well-known in the industry. The author here chooses the meaning of "prestige spreads far and wide" and names this large enterprise with the prefix Guowei Guowei. The top leader of Guowei Group is a heroine with graceful manners. Back then, the leading actress was in her prime and was sent by the State-owned Assets Supervision and Administration Bureau to take over such a large stall. She has been working at Guowei Group for decades, working hard without complaint. Unknowingly, she is over fifty years old, and her hair is as green as snow.

The day of "retreating to the second line" is getting closer and closer. The more you give, the more you look forward to getting something in return. Finally, one day, at a routine management meeting, a senior executive who had also devoted his whole life to Guowei Group clearly put on the table his idea of ??"hoping to settle down to benefit before retiring." As a result, one stone stirred up a thousand waves, and everyone's thoughts were surprisingly consistent. As a result, the decision to implement executive incentives within the company immediately reached a consensus among the senior management represented by the female chairman. According to what she said to the consultants afterwards, she said: "I have worked all my life and got nothing." This truth expresses the same sentiments of many CEOs of state-owned enterprises in China. It can be said that the leadership of Guowei Group is facing the problem of retreat and ownership, and the implementation of executive incentives is what everyone expects.

On the other hand, the rapid development of Guowei Group in recent years has also been attributed to a group of internal backbones. From the perspective of motivating the leadership of younger generations, the salary structure and promotion opportunities of state-owned enterprises do not have competitive advantages. Young cadres, especially some professional managers recruited from the talent market, have also said that there are two factors that determine their career choice, one is the path to career advancement, and the other is personal gain. When their personal income cannot reach the expected value, they will consider changing jobs. When these two emotions, old and new, are intertwined, it shakes the foundation of the long-term development of this listed company.

Decision-making process

After unanimously agreeing to implement the incentive policy, the next question is: What kind of people can be included in the scope of incentives? For Guowei Group, there are essentially two teams and one team. The president of the group company is the chairman of the joint-stock company. Except for the general manager of the joint-stock company who is not the leader of the group company, the rest of the personnel also serve as group leaders. This is also in accordance with the state's requirements for the senior management of listed companies. Otherwise, it is estimated that the general manager of a joint-stock company will also hold corresponding positions in the group company.

There are many board members who are motivated. Anyone with a little common sense about executive incentives will know that executive incentives are generally a system established by the board of directors, which represents the interests of shareholders, to motivate and check and balance senior management. Why did it take so long to get the person who formulated this system involved? The reason is actually very simple: the board members of state-owned enterprises are the senior management. The members of the board of directors of Guowei Group are not shareholders themselves, they are just representatives of state-owned assets. In other words, the principal-agent relationship that exists between shareholders and executives still exists between shareholders and board members! This is the phenomenon of the principal-agent relationship moving upward in China’s corporate governance structure, as shown in Figure 3-1. Board members are usually included in the category of incentives, which is a typical and common phenomenon among Chinese state-owned enterprises. The same face of the board of directors and senior management fundamentally explains why the executive incentive policies formulated by state-owned enterprises often provide too much incentives but not enough constraints.

In the planning stage of the plan, the management of Guowei Group encountered a thorny problem: Who will formulate the specific incentive plan? Should you do it yourself or hire an expert? Although our own people are very familiar with the internal situation of the company, it may not work in actual situations.

Stocks are purchased in advance so that the company's costs are determined in advance, and incentives are directly linked to performance; the disadvantage is that the binding force is still relatively small.

For the "fixed stock bonus" model, the consulting team calculated the approximate ratio of long-term and short-term incentives for senior executives. Assume that the net assets of Guowei Group in the current year are 300 million yuan, and the net assets in the next two years are calculated as 350 million yuan. The return on net assets is 8, and 5 is withdrawn as an incentive fund. The total reward fund for three years is approximately 5.2 million yuan. If the stock quota is 6‰ of the circulating capital, the total number of stocks is 396,000 shares, and the annual quota is 132,000 shares, the total purchase cost now is about 3.4 million (calculated based on the stock price of 8.5 yuan/share), and the cash incentive is 1.8 million Yuan, the ratio of stock incentives to cash incentives is about 2:1. This shows that if 6‰ of the circulating shares is withdrawn as a fixed stock quota, then the ratio of long-term and short-term incentives for executives is about 2:1, which is a just right ratio. The advisory team also used 7.5‰ of the outstanding shares to calculate an account for the senior management of Guowei Group. The total purchase cost is now about 4.2 million yuan, with a cash incentive of 1 million yuan, a ratio of about 4:1. Comparing the two, the board of directors and senior management of Guowei Group unanimously chose the former.

However, no matter which "pocket" mode is chosen, the operation cycle of the three methods is always controlled within three to five years. This is very different from international practice: in countries such as Europe and the United States, the cycles of stock plans or option plans mostly exceed five years, and some even reach 30 years. The reason for this is to truly tie together the long-term development of the company and the personal interests of the executives. In China, firstly, most of the senior management are members of the board of directors, and secondly, everyone has worked hard for most of their lives hoping to be rewarded in the end.

Based on the calculation that the stock quota is 6‰ of the circulating capital, the number of stocks and cash that the senior management of Guowei Group can receive in accordance with the performance incentive plan for a three-year term are shown in Table 3-1.

Table 3-1 Three-year annual incentive income composition of the senior management of Guowei Group (unit: 10,000 yuan)

Executive management Number of shares Number of cash

Level 1 Chairman 7.2 36

Level 2 Vice Chairman, General Manager 3.6 18

Level 3 Director, Secretary to the Board, Deputy General Manager 2.4 12

Note: Calculated based on the stock price of 8.5 yuan/share

Assuming that the senior management uses all incentive bonuses to purchase tradable shares, the number of shares that the three-level senior management can exchange for are 114,000 shares and 114,000 shares respectively. 57,000 shares and 38,000 shares.

Let us combine the above analysis of job allowances and performance incentives, that is, we can roughly calculate the total annual compensation of the senior management who enjoys the equity incentive plan of Guowei Group, as shown in Table 3-2 .

Table 3-2 Annual income composition of the senior management of Guowei Group after the implementation of the incentive plan (unit: 10,000 yuan)

Executive management Performance incentives Position allowances Welfare subsidies Total

First level Chairman 33 16 3 52

Second level Vice Chairman, General Manager 22 8-16 3 33-41

Third level Director, Director Secretary, Deputy General Manager 11 4-8 2.5 17.5-21.5

Faced with such figures, the senior management of Guowei Group laughed in their hearts and immediately asked the consulting team to implement this method. As a result, everyone from the board members of the group company to the middle-level cadres of the branches of the joint-stock company were included in the incentive scope, and the total number of people actually reached more than 200. The ESOP of Guowei Group has been launched.

Since the implementation of the equity incentive plan of Guowei Group covers a wide range of areas, the consulting team requested that the performance salary payment standards for executives, supervisors, and some employees be tightened in sequence. This will not only help It not only improves the sense of responsibility and mission of managers, but also strengthens managers’ guidance and management of employees

At this point, the project has only solved the core issue of the compensation system design in the Guowei Group’s executive stock ownership plan. , and this is just the tip of the iceberg.

Next, the consulting team provided reference opinions on many details such as the establishment of Guowei Group's equity incentive management organization, the timing of stock purchases and the selection of custody institutions, the operating procedures of equity incentives, equity incentive transactions, taxation, changes, personnel changes, and many other details.

Section 2: The “Points” and “Aspects” of China’s Corporate Governance

The famous economist Wu Jinglian once gave a very precise definition of corporate governance structure: “The so-called corporate governance Structure refers to an organizational structure composed of owners, board of directors and senior executives, in which a certain check and balance relationship is formed between the above three parties. Their assets are entrusted to the company's board of directors; the company's board of directors is the company's decision-making body and has the power to hire, reward, punish, and fire senior managers; senior managers are employed by the board of directors and form an executive agency under the leadership of the board of directors. Operate the business within the scope of authority.”

So in essence, the issue of corporate governance structure is a simple check and balance relationship between the owners, the board of directors and senior executives. However, in reality, the complexity of the situation of Chinese enterprises has added countless barriers to this simple relationship of checks and balances.

It is difficult to place entrepreneurial veterans

Let us focus on such a successful company: 30 years ago, in a small town in the south, several brothers founded A small factory of its own. Over the decades, the brothers have worked together and the small workshop has developed into a pillar enterprise in the local area in the early 1990s. With the recommendation of the local government, they seized an opportunity that would play a decisive role in improving the development of the entire enterprise in the future - an external cooperation project that could almost put the enterprise in a monopoly position in the industry.

In order to further develop the company, in the mid-1990s, the company recruited a group of outstanding talents from the society. One of them has now taken the high position of executive vice president of the group company. Over the past ten years, the vice president has worked hard, not only taking care of the company's old business properly, but also assisting the chairman to continuously develop many emerging industries relying on local government resources. Naturally, the power in charge of these lucrative new industries also fell into the hands of this new-school vice president.

If the situation of this company is the same as that of many typical entrepreneurial veterans who cannot keep up with the development of the company, perhaps they will have a lot of "stones from other mountains" to learn from when it comes to power distribution. , after all, this is a social environment in which the capable are promoted and the mediocre are demoted. However, what is different is that the overall quality of the senior figures of this company has always been improving with the continuous development of the company. They are really old people and ambitious. At this time, the problem between the emerging faction and the old and strong faction becomes extremely acute.

It is said that in order to alleviate and avoid the crisis of aging management of the company, the company’s chairman “has been very aggressive” (the company’s employees say) and put all emerging businesses into the group company, thereby executive The emerging group, represented by the president, centralized management and turned all the old businesses into independent subsidiaries, which were handed over to different old employees to manage separately. In addition to the conventional consideration that the old employees are familiar with the old business, there is also a deeper meaning that can only be understood but cannot be expressed in words, which is that the chairman hopes to use the form of a branch office to separate the old people from each other. Reduce the pressure they put on the new faction. It can be seen that this chairman is really strong and strong, and his mind is not confused at all. Some subsidiaries even exist in name only to provide a place for some old employees to live and work. No wonder people in such subsidiaries lamented: "Give me some power from above so that I don't look too useless." ”

For such a company, how to deal with the relationship between old ministers and new employees? How to successfully complete the handover between the old and the new? It is already a very difficult problem to solve. This executive vice president has been with the company for more than ten years. According to common sense, he should be considered an old employee, but he still can't fit into the circle of entrepreneurial veterans. When it comes to major power distribution issues, relying on his own strength to compete with the majority of older employees is tantamount to hitting a rock with an egg, even if he has the support of the chairman behind him.

But don’t forget: the chairman himself is the oldest “old man”! However, from the perspective of the chairman, who can deny that he is not the most painful figure caught between the two factions? How should such a company be governed? Who can think clearly and understand it?

Tradition trumps all else

As the saying goes, "One handsome man covers all the ugly ones." This sentence is also applicable to business management. As long as the operation is done well and the company makes money, it is a good company. Even if there are problems of one kind or another, it is not a big deal. This is like a dark spot on a beautiful woman's face, euphemistically called a "beauty mole."

Sintrust Management Consulting has come into contact with such a state-owned enterprise with a "beauty mark". Due to the good management of the leadership team, the company has become one of the few pioneers in the industry through decades of struggle. However, in addition to its impressive performance, the company's very special corporate culture is also quite controversial. For example, the widely circulated "Chinese treatment" means that as long as some people in the company meet certain conditions, they will naturally receive higher and better welfare benefits than others.

Why? We have to start from the beginning. In the mid-1980s, a scientific research institute established a company, and the new company's leadership team and key employees all came from the scientific research institute. It can be said that in order to successfully fulfill the important trust of the party and the country, everyone at the scientific research institute has devoted themselves to it. Looking back on those prosperous years, the employees of the scientific research institute dedicated their youth and their children and grandchildren. The joint efforts of the two generations have brought about the glory of the company today.

It is precisely because of the hardships and hardships of that year that a unique corporate culture was created. The company's employees are naturally divided into two factions: "people inside the hospital" and "people outside the hospital." “Internals” refers to all employees related to the Research Institute, such as family members and children of the Research Institute, while the rest are “outsiders”. The key reason why there is such an obvious distinction is that the company's senior leadership team has always been "inside the academy" from its establishment to today. They are somewhat dissatisfied with people from outside the scientific research institute from the bottom of their hearts. A feeling of reassurance.

Over time, an unwritten rule has been formed in the company: under the same conditions, "people in the hospital" have priority. They enjoy faster promotion, a better salary system and a more complete welfare system than "outsiders". More importantly, they are always bathed in an invisible atmosphere, which is full of tenderness. ——In the eyes of "outsiders", all this is "the treatment of Chinese people".

Don’t the company’s senior management know what harm this watershed boundary will bring to the company? Of course not. Just because the company's current profits are good and it has always been in a leading position in the industry, they have so far adopted a non-committal attitude towards the imperfect corporate governance structure problems caused by such backward concepts. The governance structure of modern enterprises seems so feeble in the face of traditional Chinese culture. It is no wonder that so many Chinese enterprises have made various adjustments to their governance structures, but they are always superficial.

Private enterprise governance is to govern you

The story takes place in the south of the Yangtze River with beautiful mountains and clear waters and outstanding people. The boss is a typical Jiangsu and Zhejiang person, with a thin body and the unique shrewdness of people in that area. A few years ago, he spotted the huge opportunity in the real estate industry and took advantage of his strong government connections to acquire land. The company grew rapidly and in just a few years, he became a local real estate tycoon. It was such a successful private entrepreneur who said this: "I can't find a successor!"

Why? For this company, an important reason is that the boss's mind is inevitably too small, and the appetite of the candidate's successor is too big. According to the boss of Jiangsu and Zhejiang, the successor he originally selected was the deputy general manager of the company and a native of Northeast China. Although he has been in Jiangnan for many years, he is still a Northeastern man at heart, acting resolutely and daringly. From the beginning of his business, he followed the bosses from Jiangsu and Zhejiang to conquer the country. Not only did he successfully develop land projects across several cities in the south of the Yangtze River, but the sales team he led also won many battles, and their performance increased steadily.

The locals say that the boss of Jiangsu and Zhejiang is lucky to have such a "blessed general", but only the boss of Jiangsu and Zhejiang understands in his heart: this "Northeastern Tiger" and the tiger and wolf army he leads, Not only is he a "tiger and wolf" in terms of business, he is also a real "tiger and wolf" in terms of appetite! For example, his own expenses can account for more than half of the company's entire entertainment expenses. For example, in the name of "investigating advanced real estate experience across the country," he often takes a plane to "travel around Greater China." The boss from Jiangsu and Zhejiang privately lamented: "The real estate industry has a special feature, that is, the cost is difficult to control. It can be overt or dark, up or down. If the accounting is done well, there will be no clues left. Building a building costs hundreds of millions. , That’s a common thing, with a budget of nine or ten figures, it’s so light! If he wants to get some from anywhere, he can buy several villas!”

This! The thing is that the boss from Jiangsu and Zhejiang has slowly turned from a "little trouble" into a "big stone". The more successful the company is and the more prosperous it is in front of others, the more depressed he becomes. In the end, it got to the point where I couldn't wait to think about one thing all day long: What kind of good way can I think of to catch this Siberian tiger?

This is a typical private enterprise’s naked original intention to commit to corporate governance. Because the boss, as the major shareholder, pursues the maximization of corporate value, which may not necessarily be in the interests of professional managers. What professional managers want is to maximize their personal income. It is for them to use the resources at work to meet their personal needs and maximize their utility. It is for them to maximize their self-worth by operating the company. It is for them to build a personal empire and gain wealth. maximize. Managers driven by these maximization drives may no longer work conscientiously in the interests of shareholders; they may work directly or indirectly to serve themselves.

Moreover, managers’ activities are often impossible to supervise. For example, when they spend a lot of company funds on certain activities, it is difficult to tell whether they are serving their own interests or the company’s. Benefit service. This is a fundamental reason for the existence of corporate governance structure problems: information asymmetry. This is an inevitable phenomenon in this specific environment during China's transformation from a planned economy to a market economy.

It seems that we should think carefully about the word "governance". Why is it called "corporate governance" instead of "management"? Because there is a hidden meaning in "governance", which always makes people think it means "rectification". Corporate governance is a mechanism of supervision and checks and balances for managers by company shareholders. To put it bluntly, it means that shareholders want to What kind of comprehensive method (system) can we use to control operators? When operators go against their own interests, we can "control" and "stop" them!

What business managers do all day long is "corporate management", while business owners often think about "corporate governance." No wonder some scholars say: "The so-called corporate governance structure means that shareholders buy off the top leaders." From this point of view, how to learn to buy off the top leaders and the team led by the top leaders so that they truly care about the company's management and care about the last three, five, or even more long-term , is the key to establishing a corporate governance structure.

The owner of a state-owned enterprise is absent

It stands to reason that as the legal representative of a company, the chairman is the company’s top decision-maker and should be fully aware of the company’s major business decisions. But when the consultants were working on the project, they encountered the phenomenon that the chairman didn't care at all. This situation mainly occurs in the so-called "flop companies", that is, it was originally a state agency and became a state-owned enterprise after restructuring. For example, the former Electricity Bureau was changed to an electric power company, then the power company is a "flop company." Most of the directors of flop companies are current employees of the original major shareholder units.

There are usually two types of people serving as chairman of the board: one is those old people who have reached age and are ready to retire. If they have no place to settle, they will take the title of chairman in their subordinate companies. The other is a big leader in a shareholder unit. It is very likely that one person holds the title of four or five chairman.

You are already so busy in your own unit, how can you care about the operating conditions of the companies where you are temporarily employed?

Although these two types of chairman have different "origins", the result for the company is the same, that is, the chairman has assumed legal responsibility but has little knowledge of the actual situation of the company. They have not even done so for a year and a half. You may not be able to visit the company. The board of directors represented by them needs to make a resolution. The board of directors resolution is mostly drafted by the operating management, and then the board secretary takes this document and goes around to find leaders at all levels who are board members to sign. In this process , and who can be sure that these leaders with a stroke of a pen really understand the contents of the board of directors' resolution?

But even such a chairman must be treated respectfully by the company. For example, they have a splendid chairman's office, they have dedicated secretaries and drivers, and they can earn high wages without working. Sinotrust Management Consulting has encountered such a company. When the consultants asked to meet the chairman, the gossip they heard was: "You don't need to interview the chairman. He rarely comes. Our chairman here doesn't care. The manager is fully responsible." It is said that the consultant team was stationed in the company for three months and never met the chairman until the project was completed.

A business is like a machine. Whether it operates efficiently depends to a large extent on whether its power system can operate normally. No matter how cleverly designed or well-made a machine is, as long as there is a problem with its power system, the machine will not be able to work effectively. The various efforts made by corporate shareholders to increase the value of property are like the power in the machine, and the governance mechanism is the component that transmits power and drives the operation of the machine. The reason why the private economy can be efficient is directly related to the fact that there are always people who care about increasing the value of the enterprise and there is a mechanism to ensure the input of enterprise employees' efforts.

In contrast, state-owned enterprises are machines prone to power failure. If the power problem is not resolved, any form of governance mechanism will be useless. As a state-owned enterprise that is a listed company, most of the shareholders behind it are state-owned group companies with the same name. So as the major shareholder of a listed company, it is actually the group company that is pursuing the maximization of its own interests. The most typical example is to use joint-stock companies to make money and lend the money raised from the stock market to group companies. The most extreme behavior is to spend investors' money arbitrarily and find it difficult to repay it afterwards. This is when large shareholders harm the interests of small shareholders.

In state-owned enterprises, the fundamental reason for the existence of corporate governance structure problems is the absence of the owner of the enterprise, and the lack of incentive and supervision mechanisms for managers or agents of state-owned assets. Because they don’t know who owns the company, from the board of directors to the management to the employees of state-owned enterprises, some of them only do things based on their conscience, go to work as a slog, and work as a monk for a day; some of them take advantage of their power to make high on-the-job consumption. Because it is impossible to convert corporate profits into personal wealth, various means are adopted to convert the country's money into personal interests. What's more, some even risk beheading and going to jail to commit crimes, engage in corruption and accept bribes, which ultimately affects the life and death of the company.