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The Role of Representatives of Minority Shareholders in the System of Corporate Governance

In the Context of Corporate Governance in the US, EU and China


Wenjia Yan

Due to the global influence of the shareholder-centered model of the US, both China and the EU have taken more measures to protect minority shareholders. In this respect, the representation of minority shareholders on the board, in particular the system of cumulative voting which was originally designed by the US to protect minority shareholders, has become a frequently-discussed issue in China and the EU. This study of comparative law is based upon the comparison of the attitudes among the US, China and the EU towards cumulative voting. By analyzing some empirical investigations and massive literatures of American academics as the theoretical foundation, it tries to demonstrate whether the convergence of corporate governance towards the shareholder-centered model is inevitable.

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First Chapter: Increasing Minority Shareholders’ Protection in China and the EU


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First Chapter:  Increasing Minority Shareholders’ Protection in China and the EU

Due to the agency problem caused by controlling shareholders, the globalization of capital markets and the rise of institutional investors as well as greater shareholder activism, it is clear that the shareholder primacy theory – which became preeminent in corporation law in Anglo-American jurisdictions – is now the global dominant theory. Professor Stephen Bainbridge has helpfully divided the theory into two limbs, namely the objective of the corporation should be to maximize shareholder wealth and shareholders should have ultimate control of the corporation.25 The theory has been developed to the point where it now provides that directors are to manage the corporation in such a way that ensures the wealth of shareholders being maximized to the fullest. Put simply, this means that the directors will endeavor to make as much money as they can for the shareholders. Effectively, this can be seen as involving the directors in protecting and enhancing the investment of shareholders in the corporation.26 Both China and the EU have introduced several systems for protecting shareholders. This part focuses on the influence of such model, which constitutes the main reason for adopting cumulative voting in China and the discussion of minority representatives in the EU.

A.    Concentrated Corporate Ownership and Rising Institutional Investors

The influence of the shareholder-centered model first represents itself by the dispersed corporate ownership. The corporate governance stream in finance research has long established that...

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