Chinese Journal of Sociology

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Efficiency Logic or Power Logic： Corporate Politics and CEO Dismissal in China

YANG Dian, Institute of Sociology, the Chinese Academy of Social Sciences   

  1. YANG Dian, Institute of Sociology, the Chinese Academy of Social Sciences
  • Online:2012-09-20 Published:2012-09-20
  • Contact: YANG Dian, Institute of Sociology, the Chinese Academy of Social Sciences E-mail:yangdian@cass.org.cn
  • About author:Author：YANG Dian, Institute of Sociology, the Chinese Academy of Social Sciences
  • Supported by:

    This study was funded by the Shum Fellowship of the Fairbank Center at Harvard University, and sponsored by the Institute of Sociology at the Chinese Academy of Social Sciences.

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Abstract:

 Based on the panel data of 676 Chinese publiclytraded companies in the period of 1997-2007 and the qualitative data of the indepth interviews of CEOs, Chairpersons of boards of trustees, independent trustees, fund managers and government officials, this paper analyzes the factors and mechanisms that influence the decisions of dismissing CEOs in China. At the theoretical level, the new institutional perspective on corporate governance and its method are adopted. With CEO dismissal being viewed as a socialpolitical process, the respective roles of the board of trustees (the chairperson and independent trustees), the controlling shareholders, the capital market, and the state in the corporate politics of dismissing CEOs are analyzed in depth. A CEO dismissal pattern that is remarkably different from the predictions of the agency theory and the Western experience has been found in the Chinese context: Having the two separate positions of CEO and chairperson of the board of trustees does not significantly affect the impact of its CEO dismissal on a firm’s performance. Even worse, appointing independent trustees on the board has led to unintended negative outcomes—instead of reinforcing, this has actually weakened the role of the board of trustees in monitoring and disciplining the CEO’s executive functions. Further analysis has nevertheless shown that the controlling shareholders have been quite effective in monitoring and disciplining the Chinese CEOs, and that the capital market has also significantly enhanced the sensitivity of CEO dismissals on the performance of their firms, raising the probability of underachieved CEOs to be dismissed when firm performance suffers. These findings suggest that CEO dismissal is not only an economic process subject to the efficiency logic but also a socialpolitical process subject to the power logic. The author argues that the prevalence of the power logic over the efficiency logic in organizations might be the fundamental reason for the impedance of the reform of corporate governance and other organizational and institutional changes in China, making the reform and new system remaining at the superficial level only.

Key words:  efficiency logic, , power logic, , corporate politics, , CEO dismissal, , corporate governance