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How Can China Fulfil Its Commitments on the Labour Protection in the CAI? A Study on the Employee Governance Mechanisms in the New Company Law

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Abstract

Since the employee representatives on the board of directors and board of supervisors were adopted by the Company Law in 1993, they have been powerless and gradually neglected by the policymakers and the enterprises. However, to realize the ambitious commitments regarding the labour protection in the agreement ‘in principle’ for a new the EU-China Comprehensive Agreement on Investment (CAI), reached by the EU and China on December 30, 2020, China must promote the companies to enforce the labour laws consciously by improving these employee governance mechanisms. Under the Company Law, both the employee directors and employee supervisors are mandatory for the SOEs, while the private companies can decide whether they install the employee directors. Due to the dramatic increment of the employees in the private enterprises brought out by the excessive pursuit of efficiency rather than equity in the reform of SOEs and the failure of the labour laws as the external regulations of companies to isolate the workers from the intolerable exploitation in the large private companies the Amendment of Company Law, released on December 24, 2021, has realized the significance of employees’ protection in the large private enterprises. But it has not yet changed the shareholders’ meeting centred model, which fundamentally restricts the functions of the employee directors and employee supervisors. In this regard, this article suggests that the new Company Law should eliminate the supreme power of shareholders’ meeting and impose the definite duty of complying with the labour laws upon the decision-makers of the corporations.

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Data availability

The data that support the findings of this study are available from the corresponding author [Wenjia Yan], upon reasonable request.

Notes

  1. See Lin and Milhaupt (2013), p 748.

  2. The 34th Session of the Standing Committee of the National People’s Congress ratified ILO Convention Nos. 29 and 105 on 20 April 2022.

  3. See Walther (2015), p 3. ‘China’s development achievements are the result of the hard work, the blood and sweat of the Chinese people in the past decades.’ Xi Jinping at the opening ceremony of the 2017 annual meeting of the World Economic Forum Keynote speech—Sharing the Responsibility of the Times and Promoting Global Development, 17 January 2017. http://cpc.people.com.cn/n1/2017/0118/c64094-29032027.html. Accessed 7 March 2022.

  4. The conflicts between capital and labour have already attracted considerable attention from corporate scholars. Some of them have suggested that employees possess the right to share the profits gained by enterprises. In the ‘Hong Fan Roundtable Discussion: The 2022 Revision of Company Law—Debate on the Relationship between Capital and Labour’, five experts in the field of economics and law exchanged views on labour and capital issues. The meeting was chaired by Professor Wang Yong of the China University of Political Science and Law (CUPL). Zhou Fangsheng, Vice President of the China Enterprise Reform and Development Research Association, Zhao Xudong, Professor at the CUPL, Liu Junhai, Professor at the Law School of the Renmin University of China, Liu Jipeng, Director of the Business Law School in the CUPL, and Liu Yan, Professor at the Law School of Peking University participated in the debate.

  5. Amending the Company Law was listed as Bill No. 15 and was reviewed for the first time in the Legislative Work Plan of the NPC Standing Committee of 2021, adopted at the 78th Chairmen’s Meeting of the Standing Committee of the 13th National People’s Congress on 27 November 2020 and revised at the 91st Chairmen’s Meeting of the Standing Committee of the 13th National People’s Congress on 16 April 2021, http://www.npc.gov.cn/npc/c30834/202104/1968af4c85c246069ef3e8ab36f58d0c.shtml. Accessed 21 November 2021.

  6. It is also likely that employees can end up better off at a lower cost through the corporate governance mechanisms rather than through other regulatory mechanisms. See Greenfield (2018), p 207. These external protection mechanisms with the disadvantages of long periods of litigation cannot resolve conflicts between capital and labour in a reasonable time. See Xudong (2020), p 12.

  7. In the Labour Law, Art. 38 provides that if an enterprise cannot implement Art. 36 and 38 due to its production characteristics, other work and rest arrangements may be implemented with the approval of the labour administrative department. Art. 41 stipulates that employers may extend working hours after consultation with the trade union and the workers due to production and business requirements, but generally not exceeding one hour per day; if they need to extend working hours due to special reasons, subject to the condition of protecting the health of employees, the extended working hours shall not exceed three hours per day and shall not exceed thirty-six hours per month. Art. 43 determines that employers shall not extend the working hours of workers in violation of the provisions of this law. Art. 44 provides that in any of the following circumstances, the employer shall pay wages that are higher than the wages of the workers during their normal working hours according to the following conditions: (1) If it has been decided to extend workers’ working hours, their remuneration shall not be less than 150% of their wages; (2) Where it has been decided that workers should work on a rest day and compensatory time off cannot be arranged, remuneration of not less than 200% of the salary shall be paid; (3) If it has been decided that workers should work on statutory holidays, they shall be paid no less than 300% of their wages.

  8. ‘The Information Office of the State Council today held a press conference on the performance of the national economy from January to February 2021. Ms. Liu Aihua, the spokesperson of the National Bureau of Statistics and the director of the Department of National Economic Comprehensive Statistics, introduced that the average weekly working hours of employees in enterprises across the country is 46.3 hours.’ See National Bureau of Statistics (2021).

  9. According to the Labour Law, only 2.275 times the current salary can be obtained under the 996 working system. Lou Yu, director of the Institute of Social Law of the China University of Political Science and Law, analysed that although several laws and regulations in China stipulate the upper limit of working hours and overtime, enterprises tend to arrange for more work tasks during the standard working hours, and workers therefore have to extend their working hours, and they cannot ask for overtime pay. See Yiqing (2019).

  10. In recent years, there have been many cases of sudden deaths among employees in information technology companies in China. In December 2018, a 25-year-old programmer who worked for the company DJI suddenly died, resulting in great controversy in society. Many people believe that overtime and working until the early hours is the direct cause of these deaths. See Yiqing (2019). On 29 December 2020, a female employee of Pinduoduo in her early 20s passed away unexpectedly and on 9 January 2021, another employee of this company committed suicide by jumping off a building in Changsha. See Yangyang et al. (2021).

  11. On 11 April 2019, Jack Ma, the chairman of Alibaba Group Holding Ltd, informed his employees about the controversial ‘996 overtime corporate culture’ in an internal communication. ‘The 996 of China’s BAT (Baidu, Ali, Tencent) companies is the present from the God. In the world, everyone hopes to be successful, to live a better life and to be respected. I would like to ask you that how can you achieve the success you want if you don’t pay more effort and time than others?’ See Yang (2019); CNR News (2016); 163.com (2019); see Yiqing (2019).

  12. See O’Connor (1993), pp 905–917; Bainbridge (2008), p 76; Boatright (2004), p 1; Janssen (2005), p 2; Blair and Stout (1999), p 247.

  13. ‘More subtly and perhaps more importantly, long-term employees make significant investments in firm-specific human capital. Any employee who advances to senior management levels necessarily invests considerable time and effort in learning how to do his job more effectively. Much of this knowledge will be specific to the firm for which he works. The longer he works for the firm, moreover, the more firm-specific his human capital becomes.’ See Bainbridge (2008), p 190. The presence of employee representatives on the board may improve the information available to the board because the information that the (supervisory) board receives from the company is filtered by the management. The employee representatives are usually members of the works council and as such they have thorough information about what is going on at the grassroots level of the company. See Davies and Hopt (2012), p 343.

  14. See Boatright (1994), p 396. While shareholders are largely indifferent as to whether any particular firm fails, employees are vitally interested in the success of their employers and are not indifferent as to whether their company ends up in ruin. If their company becomes bankrupt, employees will often lose their jobs, the value of any firm-specific skills, and sometimes retirement or pension benefits. See Greenfield (2018), p 193.

  15. See Ou and Zhao (2020), p 382.

  16. See Ou and Zhao (2020), p 384; ‘For example, the importance of placing human capital investment at the forefront of policies to promote economic growth and social cohesion was explicitly outlined in the Lisbon Summit of the European Council in March 2000, and has been repeatedly emphasized ever since as a key strategy to turn the European Union into the most competitive and dynamic knowledge-based economy in the world.’ See Section IV, European Commission Directorate-General for Employment and Social Affairs Unit (2002).

  17. See Hsiung (2012), p 350.

  18. See Bashshur and Oc (2015), p 1531; Liang et al. (2012), p 73. Conversely, the inability for employees to express themselves may lead to serious unfavourable results for employees’ psychological and physical well-being and lead to negative repercussions for the organization. See Knoll and Van Dick (2013a), p 349; Knoll and Van Dick (2013b), p 346.

  19. Under the stakeholder-centred model of corporate governance, the firm is an integral component of the social fabric and is characterized by the intersecting interests of various stakeholders, including not only shareholders and managers but also employees, creditors, customers and the surrounding communities which make firm-specific investments that tie their economic fortunes to the firm’s fate. See Blair (1995), p 372; Schneper and Guillén (2004), p 268; Marcoux (2003), p 15; Agle and Wood (1997), pp 853–886; Aguilera and Jackson (2003), pp 447–465; Roe (2000), pp 539–606. This approach is well exemplified by the German rule that the corporation is managed in the ‘interest of the enterprise’, which is defined as a combination of shareholders, employees, and other stakeholders’ interests. Merkt (2013), pp 521–571; A similar approach is followed in the Netherlands and the Nordic countries, where maximizing ‘enterprise value’, as a combination of shareholder and stakeholder value, is seen as the main corporate objective. Hopt (2011), p 30.

  20. ‘China will never copy any other countries’ models and practices in advancing the rule of law in an all-round way. Practice has proved that China’s political and legal system is a system suited to its national conditions and reality and with considerable advantages.’ See Jinping (2021).

  21. Since 2000 China has adopted many corporate governance measures from the US, such as independent directors and derivative actions in order to protect shareholders from the opportunistic behaviour of managers and directors and to promote the development of the capital market. See Art. 105, 122 and 150 of the Company Law.

  22. It was formed by the Mining, Iron and Steel Industry Codetermination Act of 1951 (Montan-Mitbestimmungsgesetz), the Works Constitution Act of 1952 (Betriebsverfassungsgesetz) and the Codetermination Act of 1976 (Mitbestimmungsgesetz), according to Art. 84(1) and 111(1) of Aktiengesellschaftsrecht (hereinafter ‘AktG’),

  23. See Hopt (1994), p 212; Sorkin (2006); Plessis et al. (2012), pp 172, 191.

  24. See Art. 53(1) Company Law. Art. 118 determines that the provisions of Art. 53 and 54 of the Law on the functions and powers of the board of supervisors of a limited liability company shall apply to the board of supervisors of a stock company.

  25. See Art. 53(2)(3) Company Law.

  26. See Art. 53(4) Company Law.

  27. See Art. 53(5) Company Law.

  28. See Art. 53(6) Company Law.

  29. According to Art. 84(1) AktG, the supervisory board shall appoint the members of the management board. AktG Art. 111(1) determines that the supervisory board shall supervise the management of the company.

  30. Art. 99 states that the provisions of para. 1 of Art. 37 prescribing the powers of the shareholders’ meeting of a limited liability company shall apply to the general meeting of a stock company. Art. 108 provides that Art. 46 on the functions and powers of the board of directors of a limited liability company shall apply to the board of directors of a stock company.

  31. However, the authority of the board of directors only includes implementing the resolution adopted by the shareholders’ meeting (Art. 46, para. 2), making decisions on the business management and investment plan (Art. 46, para. 3), as well as selecting managers (Art. 46, para. 9) and preparing proposals for the shareholders during the meeting. Such an arrangement may be influenced by the Constitution of the People’s Republic of China (hereinafter the ‘Constitution’): The National People’s Congress of the People’s Republic of China is the highest organ of state power based upon Art. 57 and the State Council is responsible and reports on its work to the National People’s Congress or—when the National People’s Congress is not in session—to its Standing Committee according to Art. 92. See the Constitution of the People’s Republic of China, adopted at the Fifth Session of the Fifth National People’s Congress and promulgated for implementation by the Proclamation of the National People’s Congress on 4 December 1982.

  32. In the Company Law, the proposed subjects include the company’s annual budget (Art. 46, para. 4), profit distribution (Art. 46, para. 9), an increase or decrease in the company’s capital (Art. 46, para. 6), the issuance of corporate bonds (Art. 46, para. 6), the setting up of internal departments (Art. 46, para. 8) and the company’s internal management systems and regulations (Art. 46, para. 10), as well as other major structural changes including mergers, divestitures and the company’s dissolution (Art. 46, para. 7).

  33. See Yanbing (2000), p 264; Kit Tam (2002), p 307; Lin (2004), p 7.

  34. In the current company law debate, it is without doubt that corporate governance tends to be overshadowed by prevailing Anglo-American law, whose corporate governance system has a significant global influence. At the end of the last century, Professor D. Gordon Smith asserted in a very well-received article that the shareholder primary theory ‘was one of the most overrated doctrines in corporate law.’ See Gordon Smith (1998), p 323. When it comes to considering the corporation’s objective, shareholder primacy is often the only theory set out in most finance and economics texts, as well as in many legal texts. See Bottomley (2007), p 8. In their article ‘The End of History for Corporate Law’, Professors Hansmann and Kraakman conclude that the other primary models of managerial power—including labour influence or state control—have failed and that the US model of shareholder primacy, which encourages the related depth of the capital markets, can inevitably lower the cost of capital for corporations and will continue to prevail. As Hansmann and Kraakman state, shareholders may promote efficiency and the maximisation of aggregate wealth for the benefit of society as a whole because social welfare in a competitive environment is served by maximising corporation value, thereby generally advancing economic efficiency and increasing social wealth. See Hansmann and Kraakman (2000), p 443; See also Baums and Scott (2005), p 35; O’Sullivan (2000), p 395.

  35. The system of independent directors, as a popular corporate governance system to protect investors in the US, was officially adopted by China by means of the ‘Guiding Opinions on the Establishment of Systems of Independent Directors by Listed Companies’ (hereinafter ‘Independent Directors Opinion’) in 2001 and Art. 122 of Company Law when it was amended in 2005.

  36. Despite the increasing number of independent directors, many investigations show that independent directors are powerless to protect small and medium-sized shareholders from the depredations of large shareholders and management and serve as ‘empty vessels’ in the governance of their company. See the Research Team of ‘Guidelines for Performance of Independent Directors in Listed Companies’ in: China Association for Public Companies, The Great Possibility of Enhancing the Role of Independent Directors—Abstract from the Report on the Performance of Independent Directors, China Securities Journal, A14, 16 January 2014; Liufang (2008), p 110.

  37. Art. 6 of the Rules on the Independent Directors of Listed Companies provides that independent directors can serve concurrently in no more than 5 listed companies.

  38. Three of them were held to bear 10% of the joint and several liability for signing the 2016 annual report, the 2017 annual report and the 2018 semi-annual report of Kangmei, corresponding to an amount of RMB 246 million; the other two only signed the 2018 semi-annual report and were held to bear 5% of the joint and several liability for compensation, corresponding to an amount of RMB 123 million. CNR News (2021).

  39. On 12 November 2021, Kangmei, as the first pharmaceutical company with a market value of more than RMB 100 billion, was suspected of financial fraud dating back to as early as 2012. With the purchasing of land and construction projects, it was suspected of accumulative fraud when increasing its assets to RMB 1.847 billion. This was almost the total net profit of Kangmei Pharmaceutical from 2002 to 2010. At the end of 2018, Kangmei Pharmaceutical was investigated by the China Securities Regulatory Commission for violating the information disclosure rules. In 2019, Kangmei issued an announcement acknowledging that there had been accounting errors and that the sum involved had amounted to RMB 29.944 billion. The China Securities Regulatory Commission issued a report showing that from 2016 to the first half of 2018, Kangmei had accumulated an inflated monetary capital of RMB 88.6 billion, a cumulative inflated operating income of 29.128 RMB billion, a cumulative overstated interest income of RMB 510 million, and a cumulative inflated operating profit of RMB 4.1 billion. Lingfei (2021).

  40. Lingfei (2021).

  41. CNR News (2021).

  42. Zhongyue Yun Brokerage China (2021).

  43. Lingfei (2021).

  44. See Goo (2017), p 391–392.

  45. China has realized the importance of developing the capital market for the growth of the economy in ‘Several Opinions on Promoting Reform and Opening up and the Stable Development of the Capital Market’, drafted by the State Council in 2004: ‘Developing capital markets is a task of strategic importance linked to the fulfilling of the strategic goal of quadrupling China’s GDP within the first two decades of this century. First, it will facilitate the improvement of the socialist market economy, bring into fuller play the role of capital markets in optimizing resources allocation, and effectively turn social capital into long-term investment. Second, it will facilitate the restructuring and strategic transformation of the state-owned sector of the economy and accelerate the development of the non-state-owned sectors. Third, it will facilitate the increase of the ratio of direct financing, improve the structure and efficiency of the financial market, and maintain financial security.’

  46. Art. 5m para.1 of the Independent Directors Opinion provides that major party transactions (namely proposed connected transactions between the listed company and a connected person with a total value of more than RMB 3 million or more than 5% of the listed company’s most recently audited net asset value) should be submitted to the board of directors for deliberation after approval by the independent directors.

  47. Art. 5, para. 4 of the Independent Directors Opinion provides that if a listed company establishes a remuneration committee, an audit committee, a nomination committee or other such committee under the board of directors, independent directors should account for at least one half of the members thereof.

  48. In the US, there are many cases involving hostile takeovers. See Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985); Unitrin v. American General Corp., 651 A.2d 1361, 1376 (Del. 1995); Dynamics Corp. of Am. v. CTS Corp., 794 F.2d 250, 256 (7th Circ. 1986), revised on other grounds, 481 U.S. 69 (1987); Bennett v. Propp, 187 A.2d 405, 409 (Del. 1962).

  49. Art. 32 of the Measures for the Administration of a Takeover stipulates that ‘the board of directors of the target company shall submit the report of the target company’s board of directors together with the independent financial consultant’s professional opinions to the CSRC.’ The report by the board of directors of the target company shall provide advice to the shareholders as to whether to accept the takeover offer; the independent directors of the target company shall express their views separately and both the advice and the opinions shall be announced together.

  50. According to Art. 53, para. 1 of the Company Law, the board of directors can investigate the company’s financial affairs and Art. 5, para. 4 of the Independent Directors Opinion determines that the independent directors shall account for more than one half of the members of the auditing committee. Art. 54 of the Code of Corporate Governance for Listed Companies (hereinafter ‘Code’) provides that this committee is responsible for recommending the engagement or replacement of the company’s external auditing institutions, reviewing the internal audit system, its execution, overseeing the interaction between the company’s internal and external auditing institutions and inspecting the company’s financial information and its disclosure as well as monitoring the company’s internal control system.

  51. Both the supervisory board and independent directors can propose to convene temporary shareholders’ meetings according to Art. 53, para. 4 of Company Law and Art. 5, para. 1(3) of the Independent Directors Opinion.

  52. They also have the authority to independently engage external auditing institutions and consultancies under Art. 60 of the Code, which provides that the supervisory board may independently hire intermediary institutions to provide professional opinions, and under Art. 5, para. 1(5) of the Independent Directors Opinion.

  53. Based on Art. 54 of the Company Law, the supervisors, where necessary, may hire an accounting firm to help with the relevant expenses being born by the company. Similarly, Art. 5, para. 1(2) of the Independent Directors Opinion determines that independent directors can propose the engagement or dismissal of an accounting firm to the board of directors.

  54. Art. 151 of the Company Law determines that under certain circumstances, as laid down in Art. 150 of this Law, the shareholders of a limited liability company or stock company separately or aggregately holding more than 1% of the total shares of the company may require the board of supervisors or the supervisor of a limited liability company with no board of supervisors to file a lawsuit in writing against a director or senior manager before the people’s court.

  55. See Estlund (2014), p 70.

  56. See Jian and Junyue (2010), p 83.

  57. See Cooney et al. (2012), p 18.

  58. Chan (2008), p 58.

  59. Chan (2008), p 60.

  60. In June 2000, the apex body of the ACFTU established a new policy aimed at developing new enterprise-based unions as ‘an urgent task’. The ACFTU henceforth treated this matter as a ‘political campaign’. See Yunmei (2003). Following this policy shift, the number of grassroots unions and union membership increased. By the end of 2002, the newly established enterprise unions numbered one million, with a reported increase in membership of over 36 million; total union membership had reached some 130 million. However, this rapid expansion led to other serious problems: in the rush to build up numbers rather than enhancing the ‘quality’ of unions, unions were being established in name only rather than concentrating on substance, and trade unions were being set up by the owners/employers of private businesses. In response, the ACFTU launched another campaign ‘to clean up the mess’: after one year of adjustment, between 2002 and 2003, the number of grassroots unions reduced by 50%, and membership by more than 10 million. See Gang (2006), pp 1–10.

  61. ‘Following such nominations, the process of formal “voting” by union members thus became a mere “window-dressing” exercise.’ See Howell and Howell (2008), p 845.

  62. The number of representatives shall generally equal at least 5% of the enterprise’s employees and no less than 30 individuals and include an appropriate number of female representatives. See Art. 8 and 9 of the Provisions on the Democratic Management of Enterprises.

  63. See Art. 24 of the Provisions on the Democratic Management of Enterprises.

  64. See Estlund (2014), p 82; China Labour Organisation (2009).

  65. See Jian and Junyue (2010).

  66. See Art. 70 of the Company Law.

  67. See Art. 67 and 44 of the Company Law.

  68. See the Regulation on the Duty Performance of Employee Directors in the Pilot Board of the SOEs Directly Controlled by the CCP, State-owned Assets Supervision and Administration Commission (2009) No. 53.

  69. See Gairong (2010), p 96; Zhimei (2013), p 22.

  70. See Xiliang and Fenggang (2015), p 51; Gairong (2010), p 99.

  71. In 2006, the State-owned Assets Supervision and Administration Commission (hereinafter ‘SASAC’) formulated the Administrative Measures for Staff Directors in Pilot Enterprises for the Board of Directors of Wholly State-owned Companies (for a Trial Implementation), Art. 3 of which stipulated that as the employee representative, the ‘employee director’ refers to the director who has been democratically elected by the employees of the company and with the consent of the SASAC. Art. 7 determined that candidates for employee directors who are nominated by the company’s trade union and are recommended by the employees, include the main persons in charge of the trade union or other employee representatives. Art. 8 provided that after the candidates are determined, the employee directors shall be elected by secret ballot by the employee representative assembly. If not, the employee directors may be directly elected by all employees of the company. Art. 9 stated that before the election of employee directors, the company’s party committee (party group) should obtain the consent of the SASAC; after the election, the party committee (party group) will file the results to the SASAC and the elected employee representatives should be appointed by the company.

  72. See Xiliang and Fenggang (2015), p 51.

  73. See Art. 5(3) of the Regulation on employee directors on the Board of Pilot Wholly State-owned Companies (Interim).

  74. See Art. 5(4) of the Regulation on employee directors on the Board of Pilot Wholly State-owned Companies (Interim).

  75. The target of the mixed ownership reform and the adoption of ESOP is not only to increase the productivity of SOEs but also to give consideration to the interests of all the people. See Song (2015), p 12.

  76. ‘China’s state is powerful confirmation of the genius of the corporate form as a vehicle for promoting investment and productive enterprise.’ See Lin and Milhaupt (2013), p 749.

  77. There were more than twenty million laid-off employees, who were mainly from the traditional industry district Northeast three provinces and were employed in the coal, spinning and machinery industries as well as in military production. See Fang and Yaowu (2005), p 111; Yiling (2015); Ping (2013), p 80.

  78. See Elson and Goossen (2017), p 753.

  79. The ‘Decision of the Central Committee of the Communist Party of China on Major Issues Concerning Comprehensively Deepening the Reform’ was adopted at the Third Plenary Session of the 18th Central Committee of the Communist Party of China on 12 November 2013.

  80. ‘We will allow mixed enterprises to implement employee stock ownership plans (ESOP) to form communities of capital owners and labourers.’ Art. 6 of Section II of the ‘Decision of the Central Committee of the Communist Party of China on Major Issues Concerning Comprehensively Deepening the Reform’ was adopted at the Third Plenary Session of the 18th Central Committee of the Communist Party of China on 12 November 2013; Yiling (2015).

  81. The ESOP was created in the US as a tool for social reform and national industrial policy, but it has never served as a vehicle for the fundamental restructuring of political power in the economy and the power to vote is also commonly not exercised by the workers who are the beneficiaries of the plan but rather by the plan’s trustee.See Woodworth (1981), p 43; Levin (1985), p 149. Fundamentally, the ESOP is often established by publicly-owned companies trying to avoid hostile takeovers by becoming private. Such plans put a substantial number of shares in the hands of employees who will tend to support management in their tendering and voting decisions. See Grannis (1992), p 851. See NCR Corp. v. American Tel. & Tel. Co., 761 F. Supp. 475, 493 (S.D. Ohio 1991). See Shamrock Holdings, Inc. v. Polaroid Corp., 559 A.2d 257, 273 (Del. Ch. 1989).

  82. See Bie and Chunlin (2006), p 41.

  83. See Qiang (2005), p 30.

  84. There is considerable research, especially from the US and the UK, on the beneficial effect that employee ownership can have on corporate performance. See Binns and Gilbert (2010), p 348. According to Henry Hansmann, worker ownership can improve incentives for productivity, both because it gives each worker a personal share in the returns from her own work and, perhaps more importantly, because it gives workers an incentive to monitor their fellow workers. Increasing the employee’s holdings of stock in his employer through ESOP has been lauded as the people’s capitalism. Related claims made on behalf of ESOP are that they increase savings and productivity, save jobs, and redistribute wealth. See Hansmann (1993), p 595.

  85. See Art. 19 of the ‘Guidelines of the Central Committee of the Communist Party of China and the State Council on deepening the reform of state-owned enterprises’, published on 24 April 2015.

  86. See SASAC of the State Council, Ministry of Finance and Securities Regulatory Commission Document No. 133, 2016.

  87. See SASAC of the State Council, Ministry of Finance and Securities Regulatory Commission Document No. 133, 2016.

  88. See Art. 44, 107 and 67 of the Company Law.

  89. Art. 63 provides that for a limited liability company with more than 300 employees, its board of directors shall have representatives of the company’s employees; other limited liability companies may have employee directors. The employee representatives shall be democratically elected by the employees of the company through the employee representative assembly. Art. 124 determines that in stock companies the board of directors shall consist of more than three members. The members of the board of directors can be appointed as executive directors and non-executive directors in accordance with the articles of association. The provisions of Art. 63, para. 1 on the representatives of employees on the board of directors of limited liability companies shall apply to stock companies.

  90. In the Amendment, Art. 77 determines that the board of supervisors in a limited liability company shall include shareholder representatives and an appropriate proportion of the employees’ representatives, which shall not be less than one-third, and the exact proportion shall be stipulated by the articles of association. Art. 134 determines that the board of supervisors in a stock limited company shall include shareholder representatives and an appropriate proportion of employees’ representatives, which shall not be less than one-third, and the exact proportion shall be stipulated by the articles of association.

  91. See Evergrande Research Institute (2019), p 2.

  92. Beijing ByteDance Technology Co., Ltd., is a multinational internet technology company located in Beijing, China. It was established in March 2012 and its products include Toutiao and Douyin (and its overseas version is TikTok). By 2018, ByteDance’s mobile App has more than one billion monthly users, with a valuation of 75 billion U.S. dollars, surpassing Uber to become the world’s most valuable start-up company. See Yue (2017); Chen (2018). As of March 2020, ByteDance now has 60,000 employees and plans to increase this by 10,000 employees. See The Economist (2020); Bloomberg (2020).

  93. See Tao and Wei (2021).

  94. Art. 17 of the Guiding Opinions of the Central Committee of the Communist Party of China and the State Council on Deepening the Reform of State-owned Enterprises provides that we will introduce non-state capital to participate in the reform of state-owned enterprises. We will encourage non-state capital investment entities to participate in the restructuring and reorganization of state-owned enterprises, capital increase and share expansion of state-controlled listed companies, and business management through various methods such as capital contribution, equity purchase, subscribing of convertible bonds, and equity replacement. We will implement the same share with the same rights, and earnestly safeguard the legitimate rights and interests of various shareholders. In the fields of oil, natural gas, electric power, railways, telecommunications, resource development, public utilities, etc., we will introduce the projects that conform to industrial policies and are conducive to transformation and upgrading to non-state-owned capital. We will improve the foreign investment security review mechanism in accordance with the foreign investment industry guidance catalogue and relevant security review regulations. We will carry out multi-type government and social capital cooperation pilot projects, and gradually promote the government and social capital cooperation model.

  95. See Song (2018), p 364.

  96. ‘The SOE sector has been transformed into a modern corporate sector with many large and globally operated corporations, diversified ownership and complex organisational and operational structures.’ See Song (2018), p 365.

  97. See Song (2018), p 361.

  98. The Alibaba Group (NYSE: BABA, HKSE: 9988) was founded in 1999. It is a Chinese company that provides e-commerce online trading platforms. Alibaba’s services include B2B trade, online retail, shopping search engines, third-party payment and Cloud computing services. The group’s subsidiaries include Alibaba B2B, Taobao, Tmall, Yitao, Alibaba Cloud Computing, Juhuasuan, AliExpress, Alibaba International Market, Ele.me, Flying Pig, Youku, Hema Fresh, Ali Pictures, Cainiao Network, AutoNavi Maps, Lazada, Daraz, etc. Its subsidiaries Taobao and Tmall achieved sales of 1.1 trillion yuan in 2012, and their total merchandise transactions in 2015 exceeded three trillion yuan, making them the world’s largest retailers. See https://www.alibabagroup.com/cn/about/overview. Accessed 22 November 2021; Zjnews.china.com.cn (2016).

  99. Baidu is a Chinese internet company mainly engaged in search engine services. It was founded in Zhongguancun, Beijing by Li Yanhong and Xu Yong on 1 January 2000. Among the BAT company, referring to three major internet giants in China, the first ‘B’ is Baidu, while ‘A’ and ‘T’ are Alibaba Group and Tencent respectively. But Baidu subsequently experienced difficulties with regard to social responsibility and stagnant development. Instead of becoming involved in up-front competition with other internet giants, Baidu has gradually started to invest in artificial intelligence and self-driving cars. See http://home.baidu.com/about/about.html. Accessed 22 November 2021; Ye Huo Finance & Economics (2021); Wong (2021).

  100. Tencent Holdings Limited is the largest internet company in mainland China. In November 1998, it was founded by Ma Huateng, Zhang Zhidong, Chen Yidan, Xu Chenye, and Zeng Liqing. Its business has expanded to social media, finance, information and other fields. Its subsidiaries specialize in various global internet-related services and products, entertainment, artificial intelligence and technology. At present, Tencent owns Tencent QQ and WeChat, the most popular social software in mainland China, and Tencent Games, the largest online game community. See https://www.tencent.com/zh-cn/about.html#about-con-3. Accessed 22 November 2021. Tencent was listed on the Hong Kong Stock Exchange on 16 June 2004, and became Asia’s most valuable listed company for the first time on 5 September 2016. China Business Network (2016).

  101. Jingdong (NASDAQ: JD, HKSE: 9618) is a B2C shopping website in mainland China, formerly known as 360buy and Jingdong Mall, founded by Liu Qiangdong. In 2014, JD Group was listed on the Nasdaq Stock Exchange in the United States. See https://about.jd.com/company/. Accessed 22 November 2021.

  102. See Yunsuo and Yubin (2005), pp 129–132; Junhai (2021), p 4.

  103. Art. 141(a) under Title 8 of the Corporations of Delaware Code stipulates that the business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation.

  104. The presumption that the company is a partnership with direct democracy ignores the company’s characteristics of representative democracy. See Feng (2015), p 42.

  105. There are even examples of Chinese-style corporate governance where the shareholders resolve important corporate issues by private agreement, such as the appointment of directors (rather than elections), the distribution of seats, and the buying and selling of power (in order to delegate corporate power to others at will). See Feng (2015), pp 27–28; Xudong (2021), p 78; Feng (2013), p 105.

  106. Although the Company Law has adopted many corporate governance mechanisms from the US to increase the protection of outside investors and to promote the development of the capital market, the high equity concentration has remained. ‘The data we analyse from the China Stock Market and Accounting Research (CSMAR) database1 show that during 2003–2018 > 99% of listed companies had at least one shareholder with > 10% of the shares. Even if we use a threshold of a 20% shareholding, which is regarded as sufficient for the effective control of a firm, > 80% of firms had at least one large shareholder in 2018 (down from > 90% in 2003). Although the share held by the controlling shareholder has decreased over recent years, the average (median) value of this fraction was still ∼ 33% (31%) in 2018.’ See Jiang and Kim (2020), p 733.

  107. See Yuqin (2020), pp 60–63. ‘The Giants of China’s new economy enterprises, Ali and Tencent, have completed the system innovation of entrepreneur-centred equity structure design using the model of the partners system and significant shareholder endorsement. The Hong Kong Stock Exchange, which once rejected Ali’s listing, formally announced in April 2018 that it would allow companies with dual class shares to be listed in Hong Kong. On 9 July 2018, Xiaomi became the first Chinese mainland company to be listed in Hong Kong with A and B shares. As early as January 2018, the Singapore Stock Exchange revised its listing rules and introduced similar policies supporting dual class shares. In the Opinions of the State Council on Promoting the High-Quality Development of Innovation and Entrepreneurship and Creating an Upgraded Version of Entrepreneurship and Entrepreneurship issued by the State Council on 26 September 2018, China officially proposed that in the future it will allow the dual class shares.’ See Zhigang (2019), p 59.

  108. For the duty of loyalty, Art. 148 of the Company Law determines that no director or senior officer may: 1. misappropriate company funds; 2. divert company funds into an account held in his own name or in the name of any other individual; 3. loan company funds or provide any guaranty to any other person by using company property in violation of the articles of association without first obtaining the consent of the board of shareholders, the general meeting or the board of directors; 4. become a party to any contract or business dealings with the company in violation of the articles of association without first obtaining the consent of the board of shareholders or the general meeting; 5. seek business opportunities for himself or for any other person by taking advantage of his position, or operate on his own behalf or on behalf of any other person or any business similar in nature to that of the company, without first obtaining the consent of the board of shareholders or the general meeting; 6. personally accept any commission on any transaction to which the company is a party; 7. unlawfully disclose confidential company information; or 8. act in any way that is inconsistent with his fiduciary duty to the company. Any income received by any director or senior officer in violation of this article shall be treated as the property of the company.

  109. For the duties of due diligence, Art. 98 of the ‘Guidelines on Articles of Association of Listed Companies’ mainly states that the directors shall exercise the powers granted to them by the company with care and diligence to ensure that their business judgment complies with the laws, administrative regulations and various economic policies, and shall treat all shareholders fairly, keep themselves informed of the company’s business operations and management, as well as ensuring that the information disclosed is true, accurate and complete.

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    Wenjia Yan

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Yan, W. How Can China Fulfil Its Commitments on the Labour Protection in the CAI? A Study on the Employee Governance Mechanisms in the New Company Law. Eur Bus Org Law Rev 24, 757–783 (2023). https://doi.org/10.1007/s40804-022-00263-1

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