Li Zhaoxi

After the state-owned enterprises have been transformed into companies, contradictions emerged between the so-called "three new 'huis'" (the general meeting of shareholders, the board of directors and the supervisory board) and the "three old 'huis'" (the party committee, the trade union and the employees' congress). The sticking point is that the provisions of the Law on the State-Owned Industrial Enterprises (1988) concerning the positions and roles of the trade union and the employees' congress in the leadership of the enterprises are different from the principles of the corporate governance specified by the Company Law (1993). According to the former law, the employees of a state-owned enterprise "have the right to participate in the democratic management of their enterprise" while "the state protects the master status of the employees". The employees' congress and its standing body, the trade union committee, constitute "a basic venue for an enterprise to exercise democratic management and a body for the employees to exercise their right to democratic management". Under the Company Law, however, a company should be managed by managers under the guiding and supervision of the general meeting of shareholders and the board of directors. If the relevant provisions of the Law on the State-Owned Industrial Enterprises are to continue to be implemented in the solely state-owned companies and the state holding companies, the problem that two power systems co-exist will emerge. To solve this problem, we believe, the position and roles of the employees in the Chinese society and in their enterprises should be correctly understood and manifested in the corporate governance structure. In China, the status of the employees is of a triple nature: (1) they are the master of our country; (2) they are an important stakeholder to their enterprises: (3) they are the employees of their enterprises. This status of a triple nature should be .treated and manifested in differential ways.

First, the master status of the working class is manifested in their political right to the handling of state affairs.

Those believing that the employees' congress and the trade union committee in the solely state-owned companies and the state holding companies should continue to work as bodies for the employees to exercise their right to democratic management argue that China is a socialist country and the laboring people are the master of the country: that by way of being the master of the country, the employees should enjoy the master's right to the properties of the state-owned enterprises. The problem with this argument lies in the fact that the position of the employees in the political structure of the country is mixed up with their position in the enterprises. Undoubtedly, the laboring people are the master of China, and this master's position should be manifested in their right to the handling of state affairs, first of all their right of suffrage. In the meantime, the employees of the socialist enterprises should also participate in the management of their enterprises. But that does not necessarily mean that the employees of the state-owned enterprises should naturally become the masters of the properties of their enterprises. In the final analysis, the properties of the state-owned enterprises belong to the whole people in the country. The whole people here include not only the employees who work in these state-owned enterprises but also the citizens of the People's Republic of China who do not work in these enterprises or even do not work in any state-owned enterprises. A citizen, no matter whether he works in an enterprise or whether he works in a state-owned enterprise, a collective enterprise, a private enterprise or a foreign-funded enterprise, is the eventual master of the state-owned properties in China. In this sense, regarding the properties of the state-owned enterprises as belonging exclusively to the employees of these enterprises has undoubtedly infringed upon the right of the citizens other than these employees to the state-owned properties.

The factory director's responsibility system under the leadership of the enterprise committee elected by the employees was a corporate governance structure adopted by Yugoslavia in the 1950s and 1960s. It was in conformity with the systems of enterprise self-governance and employee management then practiced in Yugoslavia. Similar system was also adopted by China within a short period after the smashing of the "Gang of Four", in which the employees' congress in an enterprise elected the factory director. And the chairman of the employees' congress or the chairman of the trade union was treated as a factory-level cadre. Later in the 1980s, this system was found to have many shortcomings and was preserved by only some small and medium-sized state-owned enterprises. Now that China has decided that its large enterprises should adopt the internationally-accepted modern corporate system, it is only natural that a standard corporate governance structure should be established in accordance with the provisions of the Company Law. To ensure the effectiveness of the corporate governance structure, it is not advisable to treat the employees' congress as an organ for the employees to exercise their management powers according to the principle of enterprise self-governance.

Second, the employees as a major stakeholder should participate in decision- making by electing the representatives into the boards of directors of their companies.

After the World War II, a major development in western corporate theories was that while the senior managers of a company should be accountable chiefly to the shareholders, they should also be responsible to the other stakeholders of the companies, including the employees, creditors, suppliers, customers and local communities. In particular, the employees are most important stakeholders to the company. Although the employees do not have material capital investment in their company, the managers of the company should also be accountable to them as long as their human capital is devoted to the company in certain degree. That means the employees also have a long-term investment in the company and bear investment risks. In Germany and other central European countries, the employees participate in making major operating decisions for their companies and exercise supervision over the senior managers by electing their representatives into the supervisory boards (boards of directors) of their companies. German laws stipulate that for a large company employing more than 2,000 people, half of the members of the supervisory board should be elected by the parties representing capital and the other half by the employees.

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