Showing papers on "Corporate group published in 2008"

Corporate governance in emerging economies: A review of the principal-principal perspective: Review paper

Abstract: Instead of traditional principal–agent conflicts espoused in most research dealing with developed economies, principal–principal conflicts have been identified as a major concern of corporate governance in emerging economies. Principal–principal conflicts between controlling shareholders and minority shareholders result from concentrated ownership, extensive family ownership and control, business group structures, and weak legal protection of minority shareholders. Such principal–principal conflicts alter the dynamics of the corporate governance process and, in turn, require remedies different from those that deal with principal–agent conflicts. This article reviews and synthesizes recent research from strategy, finance, and economics on principal–principal conflicts with an emphasis on their institutional antecedents and organizational consequences. The resulting integration provides a foundation upon which future research can continue to build.

Review Paper Corporate Governance in Emerging Economies: A Review of the Principal-Principal Perspective

Abstract: Instead of traditional principal-agent conflicts espoused in most research dealing with developed economies, principal-principal conflicts have been identified as a major concern of corporate governance in emerging economies. Principal-principal conflicts between controlling shareholders and minority shareholders result from concentrated ownership, extensive family ownership and control, business group structures, and weak legal protection of minority shareholders. Such principal-principal conflicts alter the dynamics of the corporate governance process and, in turn, require remedies different from those that deal with principal-agent conflicts. This article reviews and synthesizes recent research from strategy, finance, and economics on principal-principal conflicts with an emphasis on their institutional antecedents and organizational consequences. The resulting integration provides a foundation upon which future research can continue to build.

Corporate Social Responsibility in Supply Chains of Global Brands: A Boundaryless Responsibility? Clarifications, Exceptions and Implications

Abstract: Corporate social responsibility (CSR) is increasingly becoming a popular business concept in developed economies. As typical of other business concepts, it is on its way to globalization through practices and structures of the globalized capitalist world order, typified in Multinational Corporations (MNCs). However, CSR often sits uncomfortably in this capitalist world order, as MNCs are often challenged by the global reach of their supply chains and the possible irresponsible practices inherent along these chains. The possibility of irresponsible practices puts global firms under pressure to protect their brands even if it means assuming responsibilities for the practices of their suppliers. Pressure groups understand this burden on firms and try to take advantage of the situation. This article seeks to challenge the often taken-for-granted-assumption that firms should be accountable for the practices of their suppliers by espousing the moral (and sometimes legal) underpinnings of the concept of responsibility. Except where corporate control and or corporate grouping exist, it identifies the use of power as a critical factor to be considered in allocating responsibility in firm–supplier relationship; and suggests that the more powerful in this relationship has a responsibility to exert some moral influence on the weaker party. The article highlights the use of code of conducts, corporate culture, anti-pressure group campaigns, personnel training and value reorientation as possible sources of wielding positive moral influence along supply chains.

Corporate governance and tunneling: Empirical evidence from China

Abstract: We analyze asset appropriation by principal shareholders in China and uncover the following relationships: (1) outsiders in the board of directors, audit without non-clean opinion, and dispersed ownership prevent operational tunneling; (2) belonging to a business group and issuing B or H share exacerbate asset appropriation Institutional ownership does not prevent the embezzlement of assets and is endogenous, as investors select companies with good governance Besides governance mechanisms, stock characteristics matter in that larger firms exhibit less tunneling, whereas highly leveraged firms experience the opposite We find a decline of tunneling in 2001, which might be due to economic reforms

Institutional Logics or Agency Costs: The Influence of Corporate Governance Models on Business Group Restructuring in Emerging Economies

Abstract: Business groups, the leading economic players in emerging economies, have responded to the market-oriented transition primarily through corporate restructuring. Agency theory predicts that acquisition and divestiture would serve the interests of dominant families and foreign investors in different ways. Further, dominant families, foreign investors from shareholder-based countries, and foreign investors from stakeholder-based countries each operate under distinct institutional logics of appropriate restructuring strategies. We test hypotheses about agency and institutional mechanisms using large business groups in Taiwan between 1986 and 1998 as our empirical example. We find that, consistent with both mechanisms, family-controlled business groups are less likely to divest of unrelated businesses. However, the institutional logics mechanism can better explain the relative lack of unrelated acquisition in family-controlled groups and the difference in divestiture between groups with more shareholder-based ...

The Contingent Value of Local Partners' Business Group Affiliations

Abstract: We investigated the value of local partners' business group affiliations in international joint ventures (IJVs) by integrating economic and political perspectives on business groups with insights from the IJV literature. In 563 Sino-Japanese IJVs in China, we found that a local partner's affiliation to a regional business group enhances the performance of an IJV when its location restricts foreign direct investment (FDI). Meanwhile, a local partner's affiliation to a national business group enhances the performance of an IJV when it operates in an FDI-restricted industry. Our findings point to the contingent value of business group affiliation in emerging economies.

The Contingent Value of Local Partner's Business Group Affiliations

Abstract: We investigated the value of local partners’ business group affiliations in international joint ventures (IJVs) by integrating economic and political perspectives on business groups with insights from the IJV literature. In 563 Sino-Japanese IJVs in China, we found that a local partner’s affiliation to a regional business group enhances the performance of an IJV when its location restricts foreign direct investment (FDI). Meanwhile, a local partner’s affiliation to a national business group enhances the performance of an IJV when it operates in an FDI-restricted industry. Our findings point to the contingent value of business group affiliation in emerging economies.

The many futures of Asian business groups

Abstract: What does the future hold for Asian business groups? This paper discusses three rival hypotheses whose predictions for the future of Asian business groups differ from the predictions of the prevailing institutional voids hypothesis. The latter is a two stage model that posits that business groups first emerge to solve market failures for affiliated firms. Subsequently government initiates the construction of a “soft market infrastructure” that plug institutional voids and so weakens the rationale for group affiliation. Groups should then unravel and dissolve. Yet, business groups remain important in Asian countries that have attained high levels of market development, which casts doubt on the institutional voids hypothesis. In this paper I review three alternative hypotheses of business group development—life cycle, state-led industrialization, and crony capitalism perspectives. A synthesis of these rival hypotheses suggests that Asian business groups are likely to persist in many possible future scenarios.

Employment and Market Innovation in Chinese Business Group Affiliated Firms: The Role of Group Control Systems

Abstract: Prior research has suggested a number of potential benefits to firm membership in business groups. These benefits include availability of capital and other resources not readily accessible in an open market, the facilitation of entrepreneurship, plus information and risk sharing advantages. We suggest that another important benefit is the assistance of group control systems in helping the firm to manage conflicting pressures in the institutional environment and facilitate coevolution of these conflicting pressures. To empirically demonstrate the relevance of this viewpoint, we examine the case of China where business groups facilitate institutional transition, actively balancing market pressures to increase levels of innovativeness in firms with institutional pressures emanating from the government to maintain high employment levels. Using data from a broad sample of more than 1,000 Chinese affiliate firms in more than 200 business groups, we find that government policy, ownership and managerial mindset influence the political goal of maintaining high employment levels, while interdependence among group affiliate firms is related to lower employment levels. However, while government ownership and the government managerial mindset were negatively related to market innovation activities, group financial and cultural control systems positively affected the tendency of affiliate firms to focus on market innovation.

The performance of business group firms during institutional transition: a longtitudinal study of indian firms

Abstract: Question/Issue: Institutional and transaction costs theories highlight the idea that group affiliated firms outperform unaffiliated firms in emerging economies. The persistence of superior performance for group affiliated firms is, however, questioned by the fast and recent development of markets and institutions in these countries. In this article, we explore this link between firm performance and the evolution of institutional environment. Research Findings/Insights: The setting of the empirical investigation is India in the post-reform era (post 1990). We test for effects of business group affiliation on firm performance over a 17 year time period from 1990 to 2006. Our findings show that (i) the performance benefits of group affiliation erode with the evolution of the institutional environment; (ii) older affiliated firms are better able to cope with institutional transition than younger affiliated firms; (iii) service-sector affiliated firms are better able to cope with institutional transition than manufacturing-sector affiliated firms. Theoretical/Academic Implications: Our findings both support the institution - and transaction costs-based theory of business groups, and extends it by incorporating a dynamic and longitudinal component. They also demonstrate - in line with recent works - that the benefits of group membership differ for different types of member firms. Practitioner/Policy Implications: The article has implications for both managers and policy makers. Managers of business groups should timely adapt their strategy to the evolution of the institutional environment. Policy makers should, instead, devote attention to the consequences of their policies because they may undermine the efficiency of large national companies.

Executive pay and firm performance in the Philippines

Abstract: This paper provides the first systematic evidence on the nature of the relation between executive compensation and firm performance in the Philippines. Comparable to studies of Japan, Korea, and China, we find a positive relation between executive compensation and performance in the Philippines for those firms not affiliated to a corporate group, but that this relation does not hold for affiliated firms. We conclude that the substantial portion of the Philippine economy that is under the control of group networks incentivize managers in ways other than through use of pay–performance schemes.

Innocents Abroad: The Hazards of International Joint Ventures with Pyramidal Group Firms

Abstract: The fundamental unit of production in microeconomics is the firm, and this mirrors reality in the United States and United Kingdom But elsewhere, business groups can be the more important unit, for business strategy is often formulated at the business group level, not the firm level In many countries, this is legally enshrined in corporate governance codes that assign officers and directors a duty to act for their business group, not their firm or its shareholders Even where a duty to individual firms' shareholders exists, business groups often have pyramidal structures of intercorporate blockholdings that entrench controlling shareholders, usually wealthy families, who run their groups to maximize their utility This can impose exacerbated agency problems In either case, foreign joint venture partners who expect domestic firms to maximize shareholder value can be sorely disappointed We explain agency behavior in business groups and how controlling insiders can divert resources between firms they control, including joint ventures, to enrich themselves; and highlight differences between this behavior and agency problems in freestanding firms We then examine the telecoms industry in Brazil, a country in which most large businesses belong to pyramidal business groups controlled by wealthy families We find that joint ventures between Brazilian telecoms firms and partners from countries where business groups are rarer have significantly elevated failure rates; while joint ventures with foreign partners from countries where pyramidal groups are more common are more likely to succeed We then present clinical examples illustrating the mechanisms that drive such divergent performance in joint venture partnerships While our results are based on a single industry in a single country, we believe they highlight a previously unexamined important issue in international business strategy

Is group affiliation profitable in developed countries? Belgian evidence

Abstract: Manuscript Type: Empirical Research Question/Issue: It is fairly well established that business group affiliation can compensate for relatively weak institutions in emerging markets, and in Japan. However, business groups are also common in the EU, and there have not yet been any studies of business group affiliation and firm performance in the EU. Consequently, we investigate how business group affiliation affects firm performance in Belgium. Research Findings/Insights: We find that operating profitability of group companies is significantly lower than that of stand-alone companies, while group companies have more volatile profits than stand-alone companies. Operating profitability of group companies does not depend on the extent of group diversification. Internal capital markets transfer funds from good performers to poorly performing group companies. The impact of group affiliation on profitability does not depend on group age or group ownership. Theoretical Implications: Our study is, to the best of our knowledge, the first to investigate how affiliation with a business group affects company performance in a developed country other than Japan. The results raise the question why business groups endure in so many developed countries with good investor protection and well-developed capital markets. Some explanations proposed in the literature are not confirmed. Practical Implications: Our study offers insights to policy makers and practitioners on the value and the role of business groups in developed countries. The results raise doubts about the value of these groups in such countries and suggest that policy makers may want to consider dismantling business groups in EU countries.

From Moral Obligation to International Law: Disclosure Systems, Markets and the Regulation of Multinational Corporations

Abstract: It is well known that soft international law has begun to provide incentives for the management of a values-based behavior structure for multinational corporations. This paper will argue that hard international law can serve as a vehicle for the enhancement of a market environment in which corporate stakeholders, and principally consumers and investors, might incorporate information about corporate social behavior in their consumption and investment decisions. Specifically, a mandatory system of transparency and disclosure at the international level may provide an efficient means of creating incentives for moral behavior without the need to incorporate any one version of appropriate manifestations of social responsibility on corporate entities. International law can thus institutionalize, within a rule of law context, important incentives for appropriate behavior without incorporating any particular set of public values and provide a legal framework through which stakeholders can manage the public or social behavior of multinational corporations. The paper starts with a contextualization of the regulatory problem: the extent of the responsibility of corporate actors for the working conditions of indirect employees. Neither domestic nor international law has been much help. Law has taken only some very tentative steps to recognize or further the rise of this moral sense of obligation. The rise of the much-touted corporate social responsibility movement has resulted in the proliferation of a number of responses at every level of governance. Yet, virtually all of these responses have been in the form of soft law, usually voluntary codes that are not enforceable by any political organization, each reflecting the values of their proponents or stakeholders. Still, the obligation can be given legal effect through contract and enforced through regimes of monitoring and disclosure. The paper then considers the way in which hard international law might enhance this framework in which markets determine the substance of appropriate behavior which corporations are willing to embrace. For the purpose, the paper proposes the creation of a global system of disclosure and transparency. The object of these mandates would not be to establish a definitive set of behaviors, but rather to establish a framework within which corporate stakeholders-consumers, investors, labor, and others - could adjust their relationships on the basis of the behavior disclosed. The paper ends by pointing to the sources for such international lawmaking that already exist.

The Modern Law of Corporate Groups: An Empirical Study of Piercing the Corporate Veil in the Parent-Subsidiary Context

Abstract: Today, massive corporations – both national and international – dominate financial and commercial activities, exercising enormous economic power. The standard organizational structure for these businesses has a parent corporation as the sole shareholder of multiple, separately incorporated operating subsidiaries (or layers of subsidiaries) in a corporate group. One particular application of the law of corporate groups entails dealing with the ramifications of subsidiary insolvency. Given the massive financial assets of many multinational parent corporations, actions to ignore the legal separateness of a corporate subsidiary of a parent company offer some of the biggest potential payoffs for claimants. In today's global economic world, the primary impact of piercing theory and application comes in the context of these corporate groups. Empirical analysis treating the application of substantive piercing doctrine to the parent-subsidiary context is virtually nonexistent. This Article begins to fill that void. The underlying project is an empirical analysis of piercing the corporate veil in the parent-subsidiary context. The Article's first objective is to describe statistically the propensities of modern courts for piercing the corporate veil in the parent-subsidiary situation. Its second objective is to use advanced statistical techniques to explore potential causal relationships regarding piercing the veil in the parent-subsidiary context. Both of these objectives are unique to this study. The hope is that courts, commentators, and practitioners may be better equipped to understand and predict under what circumstances a court is likely to exercise its equitable discretion and hold a parent company liable. Some of the empirical results of this study, even on a descriptive level, are startling. Among the statistically significant findings are: * Courts seldom pierce the subsidiary's corporate veil and do so much less often than in the overall universe of piercing cases, including the classic case of a small business with one or a few individual owners. * Appellate courts pierce approximately twice as often as trial courts. * Entity plaintiffs are more than twice as likely as individual plaintiffs to successfully pierce the subsidiary's veil. * Courts are three times more likely to pierce in a contract case than in a tort case.

Featuring Control Power: Corporate Law and Economics Revisited

Abstract: textThis dissertation reappraises the existing framework for economic analysis of corporate law. The standard approach to the legal foundations of corporate governance is based on the ‘law matters’ thesis, according to which corporate law promotes separation of ownership and control by protecting minority shareholders from expropriation. This book takes a broader perspective on the economic and legal determinants of corporate governance. It shows that investor protection is a necessary, but not sufficient, legal condition for efficient separation of ownership and control. Supporting control powers vested in managers or controlling shareholders is at least as important as protecting investors from their abuse. Corporate law does not only matter in the last respect; it matters in both. This result is derived by interpreting corporate governance based on three categories of private benefits of control. Corporate law affects corporate governance depending on its impact on each category of private benefits, and not just on those accounting for shareholder expropriation. Three major areas of corporate law are considered with this view. The first is the legal distribution of corporate powers. The second is the discipline of related-party transactions. The third is regulation of control transactions. The three areas are investigated comparatively in the US, the UK, Italy, Sweden, and the Netherlands. The investigation shows that, when corporate law is analyzed in this fashion, it explains the different patterns and performance of corporate governance. This account of corporate law is not only useful for understanding separation of ownership and control, but also for indicating how to improve its efficiency through legal intervention.

Corporations and the market for law

Abstract: The state competition for corporate law has long been studied as a distinct phenomenon. Under the traditional view, corporations are subject to a unique choice-of-law rule, the “internal affairs doctrine” (IAD). This rule is explained as a historical accident, or by the special logistics of the corporate contract. The resulting market for corporate law appears to have special characteristics, particularly including the dominance of the single state of Delaware. This article challenges the traditional view. It shows that the corporate law market is best understood as a special application of the general market for law. Parties to many types of contractual relationships are able to choose the law they wish to govern their relationship, and states compete to provide the law that the parties most desire. Any differences between the corporate and general law markets are matters of degree rather than kind and are explained by applying the general forces underlying the law market to particular sets of circumstances. Theories of corporate competition that ignore the broader law market context are incomplete, and the competition for corporate law carries lessons for the law market generally. Moreover, the connection between the corporate and other law markets has implications for the constitutional status of the IAD, the scope of the IAD, and for the relationship between state and federal law. In 1974 William Cary popularized the notion that there was a market for corporate law. In that market, corporations could choose among states as places of incorporation, and Delaware became the dominant competitor in the provision of corporate laws. 1 Cary also asserted that

Rethinking directors' duties in changing global markets

Abstract: Purpose – This paper aims to examine whether directors duties, as they are typically presented in Anglo‐American corporations law, remain appropriate and relevant given recent corporate governance developments and trends in global product and capital markets.Design/methodology/approach – The paper employs a comparative approach, examining aspects of corporate governance developments in the UK, the US and Australia.Findings – The paper finds that product and capital markets are increasingly placing a premium on good corporate social responsibility and hence, Anglo‐American corporations law should be reformed to clarify directors' capacity to address broader stakeholder concerns.Originality/value – The paper provides a comprehensive summary of important currents in contemporary corporate governance and provides a market‐driven justification for changing corporations law.

A corporate governance survey of listed companies and banks across the Middle East and North Africa

Abstract: Corporate governance is the system by which business corporations are directed and controlled. This aim of this survey and its recommendations is to provide useful information for improving corporate governance practices in the Middle East and North Africa (MENA) region, as well as for the individual listed companies and banks that participated in the survey. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the boards, managers, shareholders, and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance. A company committed to good corporate governance has well-defined and protected shareholder rights, a solid control environment, high levels of transparency and disclosure, and an empowered board. The interests of the company and those of all shareholders are aligned. However, the author also recommends that in addition to awareness raising events, these same stakeholders should organize targeted seminars and workshops that focus on how to implement good corporate governance, so that the benefits of corporate governance are not only understood in theory but may also translate into practice.

The European Private Company

Abstract: The European Private Company (EPC) is best understood as part of the effort of providing a uniform statute for a wide group of companies that can operate in and move to any part of Europe under a single set of regulations. Starting from the suggestion that the EPC might increase the level of trade overall, the author goes on to point out that this vehicle may produce distinct advantages for a wide group of companies. The author points to the key role the EPC could play in the development of inward investment in the European Union, particularly in stimulating cooperative joint ventures. Importantly, the EPC may be useful to countries that have recently entered or are planning to join the European Union. The article explores the two types of companies that are likely to adopt the EPC and examines the set of model articles of association for the draft statute, which include a wide range of company law elements, including fiduciary duties, a business judgment rule, pre-emption rights, voting rules and valuation rules on share transfer.

The analysis of business groups: Some observations with reference to India

Abstract: This paper uses some available but not necessarily commonly known information on Indian business groups as the basis for interrogating some of the recent analysis of the business group in developing countries, analysis which seeks to explain why such groups exist and their consequences. The paper argues that much of this analysis is unsatisfactory both in terms of the questions posed and also the research methods adopted

Regulatory Show and Tell: Lessons from International Statutory Regimes

Abstract: Historically, the evolution and growth of American corporate law has occurred with only limited and sporadic attention to international corporate governance regimes. This article considers some possible reasons for the relative lack of attention in the United States to international corporate regimes in the past. It also discusses some interesting differences between the law relating to shareholder rights in the United States and in other jurisdictions, including common law countries such as the United Kingdom and Australia. This article argues that, in an era when there is growing skepticism about the influence of the competition for corporate charters within the United States, it makes sense for the United States to examine and test how international jurisdictions address common problems in corporate regulation.

Enduring Ambivalence of Corporate Law

Abstract: Prevailing theories of corporate law tend to rely heavily on strong claims regarding the corporate governance primacy and legitimacy of either the board or the shareholders, as the case may be. In this article I challenge the descriptive power of these theories as applied to widely held public corporations and advance an alternative, arguing that corporate law is, and will remain, deeply ambivalent - both doctrinally and morally - with respect to three fundamental and related issues: the locus of ultimate corporate governance authority, the intended beneficiaries of corporate production, and the relationship between corporate law and the achievement of the social good. Part I begins with a brief discussion of our long-standing misgivings regarding the status of the corporation as an entity, arguing that concerns regarding the potential negative consequences of permitting human beings to act behind the veil of a distinct legal person are as old as the corporate form itself. I then turn to an examination of prevailing theories of corporate governance in part II, arguing that they exhibit substantial shortcomings as descriptive theories due to their inability to account for fundamental elements of corporate law as it actually exists. Based upon a re-examination of the roles and powers of shareholders and directors in the public corporation across various doctrinal contexts, I conclude in part III that corporate law is, and will remain, deeply ambivalent. In so doing I draw upon utilitarianism - corporate law's implicit moral theory - to describe more clearly the nature and degree of corporate law's commitment to shareholder wealth maximization. Corporate law's weak utilitarian commitment to shareholder wealth maximization, I argue, reflects real but incomplete confidence in the consistency of shareholders' incentives and interests with those of the larger public - an uncertainty reinforced by the corporate form's lack of legitimacy or practical ability to articulate an authoritative conception of the social good. I then turn to the rise of institutional shareholders in part IV, assessing their effects on the issues discussed in the article, and in part V offer some brief reflections on the implications of my analysis for an important doctrinal debate cutting to the heart of corporate governance: the scope of the shareholders' authority to enact bylaws affecting the business and affairs of the corporation. Ultimately it is suggested that corporate law's fundamental ambivalence represents a keen awareness of the limitations and pitfalls inevitably attendant upon this mode of human organization, and that awareness of this core characteristic ought to be brought to bear upon the corporate governance debate.

International Tax Consolidation in the European Union: Evidence of Heterogeneity

Abstract: With regard to this topic, the authors first consider the concept of tax neutrality and its domestic and international implications. They next focus on the rules that each Member State has for a corporate group to adopt group taxation. As a result of the diversity of the national group taxation regimes within the European Union, the authors then suggest a typology for these systems as well as examining the intrinsic features of tax consolidation systems.

Multinational Enterprises and Tort Liabilities: An Interdisciplinary and Comparative Examination

Abstract: Contents: Preface Introduction Part I: Concept of Multinational Enterprise 1. Social and Economic Analysis of Multinational Enterprises 2. Multinational Enterprises as Business Organizations 3. The Legal Structure of Multinational Enterprises Part II: Exploring the Tort Liability of Multinational Enterprises 4. Jurisdictional Problems 5. Tort Liability of Multinational Enterprises in Case Law 6. Comparative Laws and Principles Regarding Corporate Group Liability 7. Liability Options Beyond the Group Liability Discussion Part III: A Way Forward 8. Future of MNEs' Tort Liability Final Conclusions Bibliography

Directors' Duties Under Chinese Law: A Comparative Review

Abstract: The terms "one-tier-board system" and "two-tier-board system" are customarily used to classify corporate governance systems of different jurisdictions. There are also other species of systems that do not strictly fit in any of the two major descriptions.1 Nevertheless, it has been the trend in the development of all systems that the centre of corporate governance shifts from the members' meeting to the board of directors. Nowadays, the powers of corporate management are basically conferred on the board of directors in most systems.2 Directors thus become crucial to the commercial performance of corporations and are held accountable for the conduct and activities of corporations. Consequently, directors have been subject to increasing legal responsibilities. China is a latecomer to corporatisation. In China, corporatisation has been a means of facilitating the country's enterprise reform - reforming state owned enterprises into modern corporations.3 The enactment of the 1993 Company Law of the People's Republic of China (the 1993 Company Law) was one of the products of China's enterprise reform efforts. The 1993 Company Law was amended twice since its coming into effect.4 An advantage of being a latecomer is that China has the opportunity of assimilating relevant and useful heritage and incorporating advanced experience into its own practice. Indeed, China has endeavoured to fully take such advantage in the process of reforming its economic structure and modernizing its legal system. Corporate legislation and practice in China particularly illustrate this point. The 1993 Company Law is an outcome of both common law and continental law influences.5 Corporate practice in China in the past ten years has further demonstrated that the Chinese have made great efforts to build up a corporate system which is close to the standard practice of other influential corporate systems, and, in the meantime, is applicable to its particular social and economic situations.6 It is therefore interesting to have a close look at the Chinese treatment of directors' duties, which is a combination of the strengths of different systems. This article attempts to provide readers with an overview of directors' obligations in China from a comparative perspective in order to draw the readers' attention to the current development of Chinese corporate legislation and practice, and how it affects the duties of company directors.