Talk about Corporate Governance

The strategic goal of SINOBO Group is to create “an international investment company with deep industrial base and worthy of respect and trust”. This strategic goal has had an in-depth reflection on what kind of enterprise SINOBO Group may become in the future and also has established the transformation of SINOBO Group from an operator to an investor.
 
- What’s the difference between “operator” and “investor”?
 
An operator often faces specific enterprises in a specific industry and it is to improve the enterprise value through the effective management. An investor often invests in different enterprises, even in different industries, and achieves the overall investment efficiency through the effective investment management. Therefore, the operator is relatively “professional” and uses the industry and management experience for the daily management decision; the investor is more “diversified” and uses the industrial and investment experience for the regular investment decision. The differences of their roles and relationships in the corporate governance structure are more essential.
 
- What does the corporate governance structure want to solve?
 
The corporate governance structure mainly refers to a kind of systematic arrangement of processing various contracts of the company, coordinating and standardizing the relationships among various interest parties.
 
The corporate governance structure is generally composed of the shareholders, the board of directors and senior management personnel. Its emphasis lies in the realization of the equivalence of the responsibilities and rights of various interest parties, not only ensuring that the enthusiasm and innovation of the senior management personnel are not infringed, but also avoiding the potential conflicts of interests between the investors and the operators through an effective supervision mechanism.
 
The governance structure provides the basic network framework of the operation of the whole enterprise and the company management is to drive the enterprise to achieve the goal under the set framework. A company without a good governance model, even with a “good” management system, is like a building without a solid foundation. Similarly, without smooth company management system, a simple governance model is only a beautiful blueprint leaking of the real contents. The corporate governance and management are both to achieve the strategic goal of the enterprise while playing different levels of roles respectively.
 
The joint-stock enterprise often needs to introduce the social capital with the expansion of the business scale. The diversification of shareholders makes the shareholders difficult to directly operate the enterprise. The management level gradually takes up the dominant position and the information asymmetry between the investors and the operators and the potential interest conflicts are increasingly obvious. Therefore, the mechanisms of the board of directors and the board of supervisors appear more important.
 
In my opinion, the governance structure is mainly to solve the decision-making, motivation and evaluation of the enterprise. The relevant decision made by professional personnel (the person with the maximum knowledge, information and experience for the decision making) is an effective decision, rather than one or two people of the company decide everything. Otherwise, not only the initiative and creativity of the management staff at all levels cannot be played, but with the bigger the company and the longer the decision-making chain, the efficiency and quality of the decision making will be decreased (decision-making). Apart from giving reasonable authorization to the professional management staff, the outstanding enterprise will also ensure the close connection between their interests and the shareholders’ interests (motivation) and provide the guidance and feedback for the performance of the management level (evaluation). 
 
All companies will face the moral risks of the management level and the potential catastrophic consequences. Therefore, the board of directors and the management level should understand the risks of the company and ensure the reasonable and normal operation of the control system of the company. The board of directors will develop or approve relevant policies in the finance, mergers and acquisitions, major capital expenditures, environment, safety, labour relations and other major field. These matters are usually processed by related committees of the board of directors.
 
At the same time, the governance structure has a great influence on the management model of the enterprise and the enthusiasm and creativity of the management personnel. The system of the board of directors is the embodiment and implementation of the governance structure in the company operation and is the core of the governance structure. A good system of the board of directors can give full play to the creativity of the management level and effectively control the operational risks of the enterprise, as well as constantly promote the sustainable development of the enterprise.