Corporate governance obstacles in unfriendly M&As

In 2015, the M&A transaction that attracted the most attention must have been the case between Baoneng and Vanke. In July that year, Baoneng Group began increasing its shares in Vanke. By 24 December, Baoneng already held 24.26% of Vanke’s shares and replaced the China Resources Group as the largest shareholder.

The senior management of Vanke publicly expressed their unwelcoming attitude towards Baoneng the same month. This article analyzes the impact of the change in the largest shareholder to a listed company from the perspective of corporate governance under the Company Law.

Structure of corporate governance

Chapter 4 of the Company Law has defined the separation and mutual monitoring of powers among the shareholders’ meeting, the board of directors and senior management, and the board of supervisors of listed companies and joint stock limited companies.

The shareholders form the shareholders’ meeting as the company’s authority to exercise powers given by the Company Law and the company’s articles of association. The directors elected at the shareholders’ meeting would form the board of directors and are held responsible for the shareholders’ meeting to operate and manage the company’s assets and appoint senior management to execute the board’s resolutions. Supervisors, elected democratically at the shareholders’ meeting, and employees will form the board of supervisors to monitor the exercise of powers by the board of directors and senior management.

Accordingly, a shareholder’s influence on a listed company is mainly reflected in how the shareholder may influence the shareholders’ meeting, board of directors and senior management.