Flogging a dead horse? Why Western-style corporate governance reform will fail in China and what should be done instead

LexisNexis Butterworths
Publication Type:
Journal Article
Australian Journal of Corporate Law, 2006, 20 (3), pp. 25 - 54
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In terms of legislation and regulation, China's corporate governance regime is now as comprehensive as that of developed Western nations. Yet it has failed to result in noticeable improvements in the performance of Chinese corporate managers. In this article, we argue first, that the continuing failures of corporate governance in China are partly due to Western-style reforms being inappropriate in the current Chinese corporate context. Second, even the effectiveness of such reforms in their countries of origin, such as the United States, is highly doubtful. In some cases, such as creating incentives to `align' the interests of management with shareholders, the reforms have been counterproductive. In other cases, such as the system of establishing independent directors and auditors, reforms have not stopped the abuses that they were designed to address. To transpose these dubious reform methods to China and expect them mysteriously to succeed in the Chinese legal environment is like flogging a dead horse. Instead of tinkering further with imported corporate governance rules, we propose some innovative and culturally specific measures that the Chinese Government, media and business leaders can take to foster greater public awareness of the importance of good corporate governance and to begin to create a culture of compliance among Chinese corporations.
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