Special Legal Person (Public Enterprise Research)

Author: Qian Jin
Publisher:
Publish Date: 2000-09-01
Features: Public enterprises under special regulation differ from other legal entities such as private or proprietary enterprises. Special regulations define public enterprises as special legal entities, while general company law or commercial law defines private or proprietary enterprises as general legal entities. General legal entities are subject only to government social management, whereas special legal entities, in addition to government social management, are also subject to government control over business operations. Therefore, the relationship between general legal entities and the government is relatively straightforward: enterprises fulfill tax obligations and comply with government administrative regulations, while the government is solely responsible for social management and has no authority over asset operations. In contrast, the relationship between special legal entities and the government is much more complex. Although not part of the government, public enterprises are the practical embodiment of the government's economic functions, existing in corporate form to sustain the government's power demands and regulate economic activities. Public enterprises must comply with the general social management of all types of enterprises, adhere to tax laws, and serve as effective tools for the government's economic regulation. In terms of operational decision-making and personnel management, they must align with the government to safeguard both enterprise and government interests. General legal entities, particularly private or proprietary ones, are primarily active in competitive industries, while the basic activities of special legal entities are confined to non-competitive sectors. In the national economy, competitive industries account for approximately 80% of the gross national product, and the economic activity of non-competitive industries is far smaller than that of competitive industries. General legal entities operate in competitive industries, and they form the main pillars of the national economy. As indispensable components of the national economy, special legal entities are not, however, the pillars of economic strength. Therefore, emphasizing the development of public enterprises is an important task in modern market economy construction, but it should not replace the need for competitive industries or be treated as the backbone of economic development. The difference in operational domains can serve as an external marker distinguishing general legal entities from special legal entities. Compared to the non-competitive sectors where special legal entities operate, general legal entities thrive in broader competitive domains, which constitute the main feature of the market. The competitiveness of enterprises is a fundamental condition for their survival. In fact, competition among enterprises primarily manifests between general legal entities. Competition among special legal entities and between special and general legal entities largely does not exist. The operational capabilities of special legal entities do not need to be measured or evaluated by the competitiveness of general legal entities. Although some countries allow special legal entities to engage in competitive industries in practice, these activities should be viewed as flexible manifestations and cannot blur the market scope of special legal entities or suggest that there is no competitive distinction between them and general legal entities. The operational principle of general legal entities is to maximize profits, while the primary role of special legal entities is to stabilize market order, aiming only for average profits. If special legal entities pursue profit maximization like general legal entities, the entire market would become chaotic. Public enterprises in non-competitive sectors exhibit characteristics of industry monopoly or natural monopoly in operations. If they unilaterally raise profit demands, competitive industry enterprises would be forced to accept the elevated price levels, disrupting and undermining the market's price formation mechanism and causing market disorder. Therefore, general legal entities can achieve profit maximization through market competition, while special legal entities cannot adopt the same operational principle or leverage their special status to demand profits above the average level. As special legal entities, public enterprises must maintain price stability in the national economy, ensuring the general price level remains stable through the stability of their own product prices. In this price equilibrium, the realization of their own profits follows the principle of averaging. For most general legal entities in the market, the pursuit of profit maximization should be the goal, and a significant portion should be able to achieve it, as this is a necessary condition for the prosperity of the market economy. However, this operational principle for general legal entities should not be imposed on special legal entities. The distinction between general and special legal entities must be clearly recognized: special legal entities in non-competitive sectors cannot pursue profit maximization like general legal entities. Special legal entities are organizational forms through which the government regulates the economy and must adhere to market stability as their fundamental operational principle. In the organizational structure of general legal entities, laws explicitly prohibit government officials from serving as legal representatives or in other management positions. Any general legal entity that violates this law by hiring government officials faces severe penalties, and the officials involved also bear corresponding responsibilities. In contrast, laws permit government officials to hold senior positions in special legal entities, with some enterprises legally requiring government officials to serve as directors and chairpersons. Thus, whether government officials can enter the corporate structure and become operational managers is another distinguishing feature between general and special legal entities, serving as a clear external distinction. Only special legal entities can accept government officials in their employ, and any enterprise where government officials hold legal positions is necessarily a special legal entity. This is a common legal regulation for enterprises across countries under market economy conditions, effectively distinguishing government-owned from non-government-owned enterprises. Therefore, for all general legal entities that are subject only to government administrative constraints, the legitimacy of their organizational structure must exclude the entry of government officials, at least superficially severing the human relationship between the enterprise and the government. Special legal entities, however, operate exactly the opposite way: they use the employment of government officials within their ranks—whether full-time or part-time—to achieve direct or indirect government control over the enterprise. Compared to general legal entities, one important difference for special legal entities is that their establishment requires legislative approval rather than government authority. This reflects the legislative body's constraint on government actions and represents a specific legal recognition or adjustment of the government's economic functions. Such legal compulsion does not exist for general legal entities, which only require government approval for establishment. Although the basis for government approval remains the laws formulated by the legislative body, this differs from the direct legislative approval and special legal adjustments required for special legal entities. Therefore, the procedures for establishing enterprises also clearly highlight the differences between special and general legal entities. Public enterprises, as government-owned entities, do not determine their establishment solely through government decisions, reflecting a normative expression of the economic system and a sign of highly legalized social management. The resulting constraints on government economic behavior are highly necessary. Drawing on the experience and management models of other countries, China must also establish legislative approval authority for the definition and establishment of public enterprises, effectively placing government management of special legal entities under legal control. After establishment, public enterprises are managed by a board of directors. The board of directors represents the enterprise, a role more pronounced in public enterprises than in private ones. However, due to the unique nature of public enterprises—different from private enterprises and other economic components—their board of directors has a special formation and status, explicitly defined by law in most countries. This makes the board of directors of public enterprises a key research topic in their study. How to summarize authoritative points from the formation of public enterprises' boards of directors across countries, how to understand the status of the board in public enterprises and its differences from that in private enterprises, and how to determine the nature of the chairman of the board and their role in the board—all these require in-depth exploration. Existing practices are abundant, but rational understanding is merely a summary of these practices. Studying these issues is essential for deepening China's reforms of public enterprises and appropriately developing them. Additionally, further research is needed on the balancing mechanisms beyond the board of directors in public enterprises.
I. Composition of the Board of Directors
The Austria Industrial Holding Company is the parent company of Austria's public industrial conglomerate. Austrian law stipulates that the members of its board of directors are determined by the company's supervisory board, which consists of 14 members: three government representatives (two from the Public Economy and Transport Ministry and one from the Finance Ministry), two representatives of the Austrian Trade Union, and the rest are experts in economic and technical management, entrepreneurs, including foreign entrepreneurs. Supervisory board members are nominated by the Minister of Public Economy and Transport and approved by the parliament. All supervisory board positions are part-time, with four annual meetings to discuss and approve major corporate decisions. The Austria Industrial Holding Company's bylaws specify that the board of directors consists of 2 to 6 members, including one chairperson. The board is responsible for the company's operations. The of the IRI Company (Italian Industrial Reconstruction Company) stipulates that the board of directors of the company consists of: the chairman, deputy chairman, three experts in financial and industrial affairs, a government auditor, the director of the Treasury Department, the director of the Ministry of State Participation, the director of the Ministry of Industry and Trade, a representative of the Post and Telecommunications Ministry, the director of the Maritime Commerce Directorate, the director of the Ministry of Labor and Social Security responsible for employment affairs, the director of the Ministry of Defense, and a representative of the Ministry of Budget and Economic Planning. The chairman and deputy chairman are nominated by the Council of Ministers and appointed by the President, while the three financial and industrial affairs experts are appointed by the Minister of State Participation. The supervisory board and the board of directors jointly oversee the work of the manager, a crucial aspect of public enterprise supervision. Managers hold significant power in daily operations, handling all personnel, finance, and resources, and the survival of the enterprise depends on them. Incentivizing managers is appropriate, but supervision is equally necessary. Supervising managers does not imply distrust; if there is distrust, they would not be appointed as managers. Therefore, trust and supervision are both grounded in trust. However, supervision should neither be vague nor overly stringent. Specific procedures must be established to achieve effective supervision with minimal effort. Implementing supervision according to established procedures is a fundamental requirement for standardized management. Thus, the formulation of these procedures is crucial. From the perspective of the supervisory board and the board of directors, supervising managers is not without authority. Their supervision should focus on key points: whether managers implement board resolutions, the quality of implementation, any violations of factory rules or discipline by managers, the appropriateness of their management of subordinates, and their competence in negotiations with external parties, and so on. Supervision must be clearly recorded in the system, with at least monthly summaries of supervisory findings. Even if no issues arise, records must note "no issues" to avoid blank entries. If problems are identified, the system must require immediate action, with the results also recorded. Employees and employee organizations also have the right and responsibility to supervise the board of directors, the supervisory board, the manager, and all levels of management. In China, supervision by employees must be included in the management of public enterprises. Regardless of whether other countries have such provisions, China should adopt this supervisory system. It is a system that grants every employee the power to supervise, embodying a broad, democratic spirit. This form of supervision can achieve the best results. External to the enterprise, there is government intervention, but that is a separate matter. Internally, the supervisory power of employees and employee organizations is significant and cannot be avoided. The establishment of this supervisory system indicates that the enterprise's management level has reached a high standard, with supervision becoming all-encompassing and pervasive. This is not a war of the masses or constant vigilance, but rather empowering every employee so that their interests are closely tied to the enterprise's interests. However, this supervision only serves to prevent malicious behavior. Although it involves everyone, it is not comprehensive supervision. Comprehensive supervision cannot be a part-time task or a matter for everyone to participate in. Ultimately, comprehensive enterprise supervision still relies on specialized supervisory bodies—the supervisory board—to take responsibility.