The Shareholder Derivative Action and Good Corporate Governance in China

Download or read book The Shareholder Derivative Action and Good Corporate Governance in China written by Zhong Zhang and published by . This book was released on 2015 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite the high expectation for the shareholder derivative action to play an important role in improving corporate governance in China, only one lawsuit has ever been brought since it was formally introduced in 2005, so far as listed companies are concerned. Above all, the 1% minimum shareholding that plaintiffs are required to satisfy by law is a barrier to derivative suits. However, it is impossible to establish and reduce the threshold figure to an appropriate level, and actually the minimum shareholding requirement as a mechanism for screening out frivolous litigation is inherently flawed. On the other hand, the nature of the derivative action determines that the strategy based upon judicial control rather than a minimum shareholding requirement cannot work properly in China, where the judiciary is weak, unsophisticated and riddled with corruption. When the judicial system is in such a state of condition, it is unrealistic that the derivative action -- and, indeed, the private enforcement of law in general -- can play a significant role in corporate governance. The findings in this paper raise a question of how corporate governance can indeed be improved in a country where the judiciary is incompetent to perform its role.