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Value-based corporate governance and management control

Author: ZhangXianZhi From: www.yourpaper.net Posted: 2009-04-16 13:53:01 Read:
[Abstract] This paper demonstrates the value-based corporate governance and value-based management control. The author believes that the core of corporate governance based on the value of financial governance; financial control to control the core value-based management; corporate governance and management control are the two priorities of the company; financial governance and financial control of the two key tasks of the company's financial .


China's economic reform and enterprise reform so that enterprises operating experience products and operation of the commodity business type, by commodity business type to changes in asset management type, and then by the asset management-type transition to the capital and operation. The result of this transition is the business growing awareness of the importance of the value and importance of value creation, and gradually the pursuit of value creation as a corporate goal.
With the reform of the economic system, the management philosophy and management style of the planned economy era is gradually replaced by the management philosophy and management style of the era of market economy. External supervision and management-based management philosophy and management, management philosophy and management style is based internal management changes. The result of this transition, so that enterprises increasingly recognized the importance of corporate governance and management control.
In this business philosophy and management concepts in a transition period, our business development is uneven understanding of the importance of value creation and the importance of corporate governance and management control is not uniform. I stood in value management perspective of corporate governance and management control issues, designed to promote a fundamental change in management philosophy.

Second, the value-based management

Value-based management (VALUE BASED MANAGEMENT) referred to VBM 1990s, the rise of a business management philosophy and management style. The VBM goal is to create value for shareholders. VBM coordinated the core of the company's management decisions with the interests of shareholders, the company's management activities naturally create shareholder value. There are many factors that affect shareholder value, to create value for shareholders, it must be clear to create shareholder value with the relationship between influencing factors. Therefore, value management is a key factor to influence or determine shareholder value-based management, Figure 1 reflects three important aspects of value-based management.

VBM, in order to enable investors to support the stock price, and investors need to maintain effective liaison and good communication. This requires investors and their relations have a clear understanding of major corporate financial results and non-financial results. Therefore, the company's board of directors and managers must correctly handle the relationship with investors, relevant, reliable information, including financial information and non-financial information to investors as possible. Impression of these non-financial information to the market has a very important impact on firm value, and value management level.
VBM, in order to understand the company's business, the need for systematic analysis, including a clear understanding of the company is facing its own strengths and weaknesses and correct evaluation of the competitors. The purpose is to develop optimal strategies in order to facilitate the creation of shareholder value. The right strategic choice must improve the company's competitiveness, and thus make a lasting, significant growth in the company to create value for shareholders.
Chosen to create maximum value for the purpose of corporate strategy, the next management program is the implementation of the strategy. This is the the VBM key ring. Historical data indicate that a considerable part in the implementation of the corporate strategy failed. The key to effective implementation of the strategy is the implementation of a comprehensive performance management (IPM). The need to establish a Total Value Management Other important factors combined assessment framework and information system in the company in order to implement a comprehensive performance management. The successful use of IPM helps to ensure a unified, easy-to-understand strategic intentions into reality.

Third, based on the value of the company governance

VBM three important aspects, actually relates to corporate investors, the board of directors and managers of the three main objectives, rights and the division of responsibilities and coordination. In order to achieve the goal of value management, that is to create shareholder value, the company's investors, board of directors, the management need to coordinate the interests and work together, this is the corporate governance of the key.
Corporate governance is the company's external right to claim in order to protect their right to obtain a copy of the company are not violated contractual relationship as the basis of the entire company control. Outside the company the right to obtain a copy of the contractual relationship with the company's value-based corporate governance, financial contractual relationship. Financial contract is signed between the company's various claims by people on corporate affairs corporate governance on the basis of external claims by the company, the implementation of financial control is the primary means for them to achieve the goal of corporate governance. Seen in the corporate governance process to deal with the interests of the parties to a contractual relationship, the financial relationship is the core of a variety of interests; has become the core of corporate governance in the value-based corporate governance, financial governance.
In financial governance, the basic relationship between the various claims by people, conflicts of interest, governance mechanisms are determined by the financial covenants. These contracts typically include equity investors signed option contracts, credit contracts, signed with debt investment compensation contract signed with the managers.
The equity contract among the shareholders of the company signed the contract for the relationship between the interests of the internal coordination shareholders, to coordinate the relationship between the majority shareholders and minority shareholders, especially in the case of dispersed ownership. Option Deed provides shareholders invested equity capital, the company has the right to govern, that the right to vote and to stand for election on the Board of Directors, merger, division, discontinued operations and other major decisions have the right to vote; sale and the right to transfer shares; when the company the issue of new shares, with preferential subscription rights; residual claim on the company's income. In the case of equity highly fragmented, most shareholders do not participate in the affairs of the company management. In this way, the control of the company fall into the minority have more shares in the hands of major shareholders, the formation of their control of the company is greater than the power structure of the usufruct. Well, these shareholders have the ability, motivation, through a variety of ways to transfer wealth from other shareholders. The largest shareholder in the control status of encroachment on the interests of small shareholders is mainly manifested in: (1) direct encroachment; (2) related party transactions; (3) related party loans. Therefore, the option contract by providing some additional clause to avoid the asymmetry of the control rights and income rights in order to protect the interests of all shareholders.
Loan covenants on debt financing issues related to the contract signed between the creditors and shareholders and managers. General provisions the creditors put money into the enterprise, fixed claims (including principal and interest); liquidation encumbered assets in the case of companies do not have scheduled debt, the creditor, even forcing companies to bankruptcy so as to capture control of the enterprise the right. Due to the differences in control rights and income rights of shareholders and creditors, there are potential conflicts of interest between creditors and shareholders and managers. Shareholders and managers may take opportunistic behavior, trying to infringe on the interests of the creditors. This is reflected in: (1) replacement of assets; (2) strategic default; (3) Debt dilution; (4) debt overhang; (5) transfer of wealth. Therefore, the credit contract, in addition to the general provisions to make the essential characteristics of the decisions of the credit relationship, but also provides some additional terms, shareholders and regulators to prevent the occupation of the interests of creditors. These terms are usually divided into the terms of the commitment and negative terms of the two types of former provides that the debtor must comply with the behavior; acts which directly limit the harm the interests of creditors of the debtor.
Compensation contract is a contract signed between the shareholders and senior managers on the rights and obligations of the senior managers. It generally provides good performance when managers shareholders remuneration given to managers, and managers performance is poor, will be subject to penalties (deduction bonus, wage cuts, and even dismiss them). Managers in the company have a certain determination, his job consumption adequacy of the lack of clear criteria. Also, because the managers have an advantage in the information distribution to shareholders To verify whether managers work hard takes monitoring costs, and even in some cases, such supervision is not possible. In addition, in the case of dispersed ownership, managers can use the largest shareholder for occupation of the interests of minority shareholders encroaching on the interests of all shareholders. Therefore, the compensation contract in addition to the managers deserve compensation, under different management performance, but also provides some additional terms, the administrator limit occupation of the interests of the shareholders. These terms and the additional terms of the credit contract, can be divided into the terms of the commitment and negative terms. Fourth, value-based management control
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