In recent years, state-owned enterprises have constantly carried out in-depth reform and actively explored how to improve corporate governance structure. They have made important progress, but still lag behind compared with standard of the modern enterprise system. We need to learn from recent experience, continuously update and enrich our understanding on corporate governance structure of state-owned enterprises and strengthen the incentive and restraint mechanism, because only in this way can we act as instructions released on central economic work conference and further deepen the reform.

Focus on normal functioning of state-owned enterprises

State-owned enterprises are entities which inherit generalness of "enterprise" and specialty of "state-owned". To improve corporate governance structure, it is necessary to draw on mature systems of general corporate governance, also let state-owned enterprises play their special functions.

They are first enterprises, have to be managed following the general rules of corporate governance and should not take the traditional models in managing the party and government. So organization, capital management and staffing of state-owned enterprises should follow the internal rules of enterprise development, to give full play to market in allocating resources and improve their efficiency and service quality. A corporate governance model in accordance of the market economy is to be established; therefore, they may provide more and better products and services under fixed cost or provide the same products and services at lower cost.

Their state-owned properties make them different from the general market entities. Because state-owned enterprises are the media to deliver public goods and services and regulate the market, managed by the government following market mechanisms and enterprise management models. For instance, the government may invest in energy, infrastructure and other strategic areas in order to guarantee national security and steady development of economy and society; it may invest in high-tech industries, to encourage technical innovation and promote economic restructuring and industrial upgrading; it may also invest in the general competitive areas in special stages of economic development and institution reform to encourage employment, stabilize the market and promote economic development. State capital inject them with significant public property, thereby, their allocation of capital, personnel and organization should also follow the mechanism in distributing public resources to ensure their normal functioning. Therefore, we need to actively explore specific ways and means to combine management of party officials and the market mechanism, transfer outstanding entrepreneurs who are loyal to the party and the state to state-owned enterprises, meanwhile we must give full play to party organizations in enterprises as the political core to ensure implementation of the party and government policies in the state-owned enterprises.

Base on the reality and specific situation of each enterprise

To improve corporate governance structure, we need not only to distinguish similarities and differences between state-owned and general enterprises, but recognize universality and particularity of different state-owned enterprises and avoid uniform management pattern.

Different industries may adopt distinct governance model. For naturally monopolized state-owned enterprises, composition and allocation of the Board should especially reflect its public property, to ensure that its decision-making fully reflects the needs of society, to ensure effective supervision of the community, and promote business development and quality of services to achieve maximum public interests. As to state-owned enterprises in general competitive fields, they should adopt a more market-oriented approach to resources allocation, to ensure timely decision-making and implementation in accordance to rapidly changing market, to continuously improve efficiency and preserve and achieve appreciation of state-owned assets.

State-owned enterprises with different functions may use varying governance models. In terms of function, state-owned enterprises managed directly by Beijing municipal government mainly include investment companies, holding companies, industry groups and state-owned asset management companies. So governance models should fully reflect the actual situation of different enterprises. For instance, investment companies mainly deal with capital operation, so the duties of their Board and managers overlap to a certain degree; while for industry groups, the decision-making responsibilities of the Board do not overlap much with the management duties. Therefore, their governance structures have to be different.

Governance models are to be different because they have unique shareholding structure, such as single and multi-ownership of the shares, multiple components of the state-owned shares and multiple components of state-owned and non-state elements. For single ownership of wholly state-funded enterprises, the Board is difficult to form effective internal checks and balances. Under the current less perfect market circumstances, if manager candidates are fully autonomously decided by the Board, the risks of internal control are relatively high. As to state-owned enterprises with diversified ownerships, since they have multiple interest bodies, the Board can be inter-checked and balanced. It is relatively effective to make major decisions by the board of directors and choose manger candidates in accordance with the market mechanism.

Governance model can not exactly the same because enterprises are of different sizes. Large-scale enterprises have abundant management personnel; therefore we can reduce overlap of the governance institutions and facilitate division of responsibility, coordination and mutual checks. Small enterprises have not as many management staff, so the Board members and management personnel can overlap to reduce management costs and improve efficiency.

To clarify the border of responsibilities and power and improve the accountability system

The essence of corporate governance structure lies on allocation of responsibility in the institution. The focus is to clarify the border of responsibilities and power in accordance with the Equity Principles and based on proper organization and staff allocation and taking responsibility as the core. Investor representatives, property rights representatives and general managers are to be authorized by levels according to the principal-agent relationship. They have to fulfill their obligations and assume corresponding responsibilities and afford interests matching their responsibilities and commitment, including payment and other incentives. We hope through this distribution system, responsibilities, power and obligations organic are well integrated, a clear chain of responsibility on managing state-owned assets and a solid responsibility system are established.

Power and responsibility of Board of directors, supervisors and managers should be clarified. The power and responsibility of authority, decision-making bodies, implementation and supervision bodies are to be clearly defined to establish a complete accountability system. The Board of directors makes decisions concerning business development strategy, major investment etc, they are responsible for investors and take charge of assets maintenance and appreciation to ensure proper functioning of the state capital. Managers take charge of executing; they are responsible for implementing decisions of Board of directors and afford responsibility for production and operation of enterprises. The board of supervisors is to monitor business of boards of directors and managers and companies’ finance, they are responsible for the investors and preserving state-owned assets. When border of power and responsibility is clearly defined, responsibility is also clear. Representatives of state-owned property stand on the interests of investors, managers follow decisions made by board of directors, and Board of Supervisors monitors board of directors and managers. All of them need to fulfill their own duties.

The border of power and responsibility of the government, State-owned Assets Supervision and Administration Commission of State Council (SASAC) and enterprises need to be clearly defined. The government's role as public management organization and as investors should be separated, which is one premise to establish sound corporate governance structure. The main functions of government fall on economic regulation, market supervision, social management and providing public service, therefore government agencies and departments other than SASAC do not afford the duties of investors; and SASAC perform the duties of investors on behalf of the government and dose not manage public affairs. To clarify borders of power and responsibility of SASAC and enterprises, we mainly need to separate supervision and management of state-owned assets. As being authorized, SASAC supervises state-owned assets and exercises the rights to make decisions on major matters, to select operators and enjoy benefits from assets, in accordance with the principle of "to supervise assets in combination of personnel and other affairs”. SASAC can not directly interfere in independent business of enterprises. State-owned enterprises, as independent legal and market entities manage by themselves and participate in market competition according to rules and regulations under the market economy.

To standardize work flow and procedures

The key issue in resolving the problems of "likeness in appearance rather than in spirit" and "readiness in appearance rather than in essence" within corporate governance structure falls on institutional improvement, and the focus on institutional improvement lies on standardization of work flow and procedures.

Work flow and procedures should be standardized. Based on clearly defined power and responsibilities, the focus goes to standardizing rules and work flow of board of directors, supervisors and managers, aiming at shaping corporate governance structure to be systematic, specific and programmed. In standardizing work flow and procedures, we are not trying to find "whose decision counts” but "Whose decision is right". Currently, we should focus on the following issues: to establish collective decision-making of the Board and discussion and decision-making system which can trace error to root personal, to select and review Board members by sponsors, to select and employ Board and assess managers, to select staff legally of the general manager and others. We hope to standardize workflow is beneficial for the Board to make scientific decisions, for managers to implement efficiently and for supervisors.

Communication and coordination between organizations are to be strengthened. Though Board of directors, Board of Supervisors and managers afford different duties, mutual checks and balances, they share a common objective, namely to develop state-owned enterprises, and therefore they are actually a coherent whole. This requires organizations to establish sound communication mechanism; otherwise it could lead to difficult decision-making, implementation and supervision.

If Board of directors do not communicate enough with managers, their decision-making may not be reasonable; if managers do not communicate with the decision-makers, implementation may be difficult; if the Board of supervisors does not communicate enough with the decision-makers and the implementation personnel, effective supervision will be very difficult or the cost of supervision will be high. To establish an effective communication mechanism, one important aspect is to launch an information disclosure system. We should actively introduce advanced technology, for instance information technology to establish platform of information communication and solve the problem of asymmetric Information. We hope after effective communication mechanism is established, power, decision-making, implementation and supervision bodies can maximize their function and efficiency.

"Three-dimensional" management, including corporate governance, the party as the core, democratic participation of employees

To improve corporate governance structure of state-owned enterprises, we must at the same time give full play of the party as the political core and strengthen democratic management by the workers, following a "three-dimensional" approach. This is an essential requirement in building modern enterprises of Chinese characteristics.

CPC should fully play its key political role. To guarantee the party's leadership over state enterprises is a major political principle. No matter how do their leadership system and organization management change, this principle can not be shaken. Meanwhile, CPC branch organizations of state-owned enterprises should also be adapted to the modern enterprise system, clarify their responsibilities and power and explore effective ways and means to play their role as the political core. First, functions of each CPC branch are to be clarified. Party organizations are no longer the highest decision-making body in enterprises; they are mainly involved in making important decisions to guarantee and supervise policies of the party and state are implemented. Second, CPC branches need to make innovative approaches. During decision-making, they are required to raise suggestions following the principle of "two-way access and to hold party and government posts concurrently" and remove obstacles for workers to keep their interests; when decisions are made, they are expected to lead and encourage the masses in implementation; They also have to supervise implementation and make timely coordination and feedback. CPC branches in enterprises must set a model in abiding by laws and regulations and supporting shareholders, boards of directors, Supervisors, and Managers. Third, to improve and strengthen party branches, to give full play to their role as fighting bastions and the communist vanguard and exemplary role, and to fully demonstrate their cohesion, power and impact. Fourth, mechanism for coordination of interests is to be established, to safeguard and realize all the legitimate rights and interests. Fifth, to advocate enterprise culture, promote advanced socialist culture and core values, in order to unite the people, rallying forces and jointly promote the development of enterprises.

Democratic management of employees is to be strengthened. First, the system of workers' sitting in the Board of directors and Board of Supervisors is to be improved. Employees of high quality, strong sense of responsibility who can truly represent the interests of workers should be promoted as board directors and supervisors in accordance with relevant laws and regulations. They can safeguard the interests of workers are normally expressed, reflected in the company’s decision-making and realized in implementation and guarantee sound integration of the interests of workers and enterprises.

Second, employee representative conference should be made full use of. Pursuant to the Company Law, the Trade Union Law and other laws and regulations, employee representative conference is guaranteed of the right to know, to make recommendations on major issues related to production and operation and the right to supervise on management personnel of all levels. And major issues concerning the vital interests of employees such as enterprises management and income distribution should be discussed on employee representative conference following fixed procedure. Third, communication and consultation mechanism between the management personnel and workers should be established and perfected. In this way, voice of the workers are heard and the management personnel can guide and lead workers in understanding, supporting and devoted themselves into enterprise reform and development.