Perspective | Basic Issues of Corporate Governance Compliance in State-Owned Enterprises

Corporate governance is an important component of modern enterprise management and is the foundation for leveraging the advantages of corporate systems and strengthening enterprises. Improving the corporate governance structure of state-owned enterprises is an inherent requirement for comprehensively promoting the rule of law in enterprise management and ensuring the efficient operation of state-owned enterprises. In providing legal services to large state-owned enterprises, the management is very concerned about their legal duties and responsibilities, and there is insufficient understanding of the rights and responsibilities involved in participating in management bodies such as the party committee, board of directors, and executive meetings, especially in group enterprises where the decision-making authority between parent and subsidiary companies is often unclear. These issues stem from a lack of understanding of compliance in corporate governance.

Therefore, we adopt a problem-oriented approach, summarizing the basic characteristics of modern corporate governance of state-owned enterprises based on laws and regulations as well as the regulatory system for corporate governance, and propose opinions and suggestions for improving the modern corporate governance mechanism, hoping to benefit the compliant development of corporate governance in state-owned enterprises.

According to Article 2 of the 'Guidelines for Compliance Management of Central Enterprises (Trial)', compliance refers to the business management behaviors of enterprises and their employees that conform to laws and regulations, regulatory requirements, industry standards, and the company's articles of association, rules, as well as international treaties and rules. Corporate governance compliance is a dynamic process that regulates corporate governance behaviors to meet the requirements of laws and regulations, regulatory requirements, industry standards, company articles of association, rules, and international treaties and rules. Corporate governance compliance has the following characteristics:

(1) Corporate governance compliance is specific area compliance.Depending on the areas involved in compliance, corporate compliance can be divided into specific compliance and comprehensive compliance. Specific compliance refers to compliance in a particular business area of the enterprise. Comprehensive compliance covers compliance requirements across all business areas, departments, subsidiaries, branches, and all employees, throughout the entire process of decision-making, execution, and supervision. Corporate governance compliance is the compliance of the specific area of corporate governance, which is a dynamic process of governance bodies operating in accordance with laws and regulations and the company's articles of association.

(2) Corporate governance compliance includes procedural compliance and substantive compliance.Procedural compliance means that the behaviors of enterprises and employees conform to the procedural matters specified in the regulations. In corporate governance compliance, whether a board resolution is conducted according to the rules of procedure for board meetings and whether the pre-procedures of the party committee are followed according to the articles of association are highly procedural. Substantive compliance means that the behaviors of enterprises and employees conform to the substantive content specified in the regulations. In corporate governance compliance, whether board members fulfill their duties in accordance with the articles of association and whether they act diligently and responsibly reflect the substantive content of corporate governance compliance.

(3) Corporate governance compliance has a strong degree of autonomy.China's Company Law provides enumerative provisions for the powers of shareholders' meetings, boards of directors, and managers, while also establishing autonomous provisions such as 'other powers specified in the company's articles of association' and 'other powers granted by the board of directors.' The articles of association may provide otherwise for the powers of managers. In terms of specific corporate governance structure, 'limited liability companies with fewer shareholders or smaller scales may have one executive director without a board of directors. The executive director may also serve as the company manager. The powers of the executive director are specified in the company's articles of association.' 'Limited liability companies must have a supervisory board with no fewer than three members. Limited liability companies with fewer shareholders or smaller scales may have one or two supervisors without a supervisory board.' These provisions provide legal basis for companies to develop personalized corporate governance mechanisms based on their characteristics.

(1) Corporate governance compliance is necessary for the rule of law in enterprise management and is a guarantee for high-quality enterprise development.Independence, clear rights and responsibilities, and mutual checks and balances are the foundation for the scientific and efficient operation of corporate governance bodies. Laws and regulations institutionalize the positive interaction of corporate governance bodies, and the rule of law in enterprise management requires that corporate governance bodies operate in accordance with laws and regulations and the company's articles of association. In corporate governance compliance, each body performs its duties according to the prescribed procedures, providing a mechanism guarantee for achieving high-quality enterprise development.

(2) Corporate governance compliance helps enhance enterprise competitiveness and is the only way for enterprises to achieve stable development.In recent years, the asset scale of state-owned enterprises has continued to expand, but economic benefits have not increased correspondingly, and some have encountered significant risks. The experiences and lessons of large domestic and foreign enterprises indicate that the larger the enterprise, the more risks it faces, and the higher the requirements for sustainable development, which increasingly relies on the rule of law. Under the new normal of economic development in China, state-owned enterprises face heavy tasks in transformation and innovation, significant pressure to improve quality and efficiency, and greater difficulty in balancing short-term benefits with long-term development. Only by raising the banner of compliance can enterprises further standardize their management and continuously enhance their competitiveness.

(3) Corporate governance compliance helps prevent potential risks in enterprise management, and reducing risks and losses is also a benefit for enterprises.The operation of a corporate governance mechanism that is independent, with clear rights and responsibilities and mutual checks and balances, can reduce and minimize the risks brought by human factors to enterprises. Collective wisdom helps in scientific decision-making, preventing decision-making risks and reducing the risks of losses caused by improper decisions.

(4) Corporate governance compliance helps standardize employee behavior, ensuring due diligence and preventing risks from executive decisions, promoting healthy enterprise development.Compliance construction is an inherent requirement for deepening the reform of state-owned assets and enterprises and establishing a modern enterprise system. In the coming years, the transformation of state-owned capital investment and operation companies, improving the state-owned capital investment and operation system, introducing social capital to participate in the reform of state-owned enterprises, developing a mixed ownership economy, improving the corporate governance structure, and implementing a professional manager system will inevitably lead to adjustments in related interests and restructuring of legal relationships, making the work more arduous and complex than ever. The more arduous and complex the reform, the more it is necessary to comply with laws and regulations, adhere to the legal bottom line, eliminate violations, and prevent the loss of state-owned assets. Only by comprehensively enhancing the ability to govern enterprises according to law can we successfully complete various reform tasks and effectively avoid major mistakes.

(5) Violations of corporate governance will bear corresponding adverse legal consequences, including civil liability, administrative liability, and even criminal liability.The specific details are as follows:

1. Civil Liability. Enterprises and their employees shall bear corresponding civil liability according to law for damages caused to others due to violations. According to Articles 147 and 149 of the Company Law, directors, supervisors, and senior management personnel must comply with laws, administrative regulations, and the company's articles of association, and have a duty of loyalty and diligence to the company. If directors, supervisors, and senior management personnel violate laws, administrative regulations, or the articles of association while performing their duties, causing losses to the company, they shall bear compensation liability. According to Article 71 of the Law on State-Owned Assets of Enterprises, directors, supervisors, and senior management personnel of state-funded enterprises who engage in statutory behaviors such as "violating the decision-making procedures prescribed by laws, administrative regulations, and the articles of association, deciding on major matters of the enterprise" and "other violations of laws, administrative regulations, and the articles of association while performing their duties" that result in losses to state-owned assets shall bear compensation liability according to law.

2. Administrative Disciplinary Responsibility. According to the Law on State-Owned Assets of Enterprises, the Interim Regulations on the Supervision and Administration of State-Owned Assets of Enterprises, and the Measures for the Supervision and Administration of State-Owned Assets Transactions, there are systematic regulations on legal responsibilities for violations. The main types of administrative penalties for non-compliance in the governance of state-owned enterprises include dismissal and warnings. Depending on the degree of asset loss and the nature of the issues, relevant responsible persons may face organizational handling, salary deductions, entry restrictions, disciplinary actions, or referral to judicial authorities.

3. Criminal Responsibility. According to Article 168 of the Criminal Law regarding the crime of abuse of power by personnel of state-owned companies, enterprises, and institutions, if staff of state-owned companies or enterprises are severely irresponsible or abuse their power, causing bankruptcy or significant losses to state-owned companies or enterprises, resulting in major losses to national interests, they shall be sentenced to imprisonment of less than three years or criminal detention; if they cause particularly significant losses to national interests, they shall be sentenced to imprisonment of three to seven years.

The regulations on corporate governance mainly govern the internal governance structure of state-owned enterprises, covering areas such as the articles of association, organizational structure, internal decision-making, and legal risk control. According to the Legislative Law of our country, the term "law" in legislation includes laws, administrative regulations, local regulations, autonomous regulations, and separate regulations, with certain differences in the subjects, procedures, and levels of effectiveness of different "laws". From the perspective of the nature of regulations, the regulatory norms for state-owned assets consist of a vast system of norms including laws (including judicial interpretations), administrative regulations, relevant opinions and regulations from the Central Committee of the Communist Party of China, the State Council, and the General Office of the State Council, departmental regulations, local government regulations, and normative documents, which are detailed as follows:

(1) Laws (including judicial interpretations) and administrative regulations.Laws and administrative regulations are the highest-level norms in the corporate governance regulatory system and serve as the basis for the formulation of other norms. These norms mainly include the Civil Code, Company Law, and judicial interpretations of the Company Law (1 to 5), the Law on State-Owned Assets of Enterprises, and the Interim Regulations on the Supervision and Administration of State-Owned Assets of Enterprises (State Council Order No. 378), among others.

(2) Opinions and regulations from the Central Committee of the Communist Party of China and the State Council regarding corporate governance.According to Articles 2 and 9 of the Law on State-Owned Assets of Enterprises, the State Council exercises state ownership of state-owned assets on behalf of the state, and the state establishes and improves the basic management system for state-owned assets, with specific methods formulated according to State Council regulations. Based on this, the Central Committee of the Communist Party of China, the State Council, and the General Office of the State Council have formulated a series of management systems for the governance of state-owned companies. These norms have a certain guiding nature and are normative in themselves, usually leading to the issuance of departmental regulations or normative documents for implementation by the investor institution.

These norms are often reflected in opinions and notices, including: "Regulations on the Work of Grassroots Organizations of State-Owned Enterprises by the Communist Party of China (Trial)"; "Guiding Opinions of the General Office of the State Council on Further Improving the Corporate Governance Structure of State-Owned Enterprises"; "Several Opinions of the State Council on Reforming and Improving the Management System of State-Owned Assets"; "Notice of the State Council on Issuing the Plan for Reforming the Authorization and Operation System of State-Owned Capital"; "Notice of the General Office of the State Council on Issuing the Interim Provisions on the Responsibilities of State-Owned Financial Capital Investors"; "Guiding Opinions of the Central Committee of the Communist Party of China and the State Council on Improving the Management of State-Owned Financial Capital."

(3) Local government regulations or departmental regulations.According to relevant provisions of the Legislative Law, various ministries, committees, the People's Bank of China, the Audit Office, and directly affiliated institutions with administrative management functions under the State Council may formulate regulations within their authority based on laws and administrative regulations, decisions, and orders of the State Council. The people's governments of provinces, autonomous regions, municipalities directly under the central government, and cities with districts may formulate regulations based on laws, administrative regulations, and local regulations of their respective provinces, autonomous regions, and municipalities.

The State-owned Assets Supervision and Administration Commission of the State Council, the Ministry of Finance, or local governments formulate corresponding regulations based on laws and the State Council's opinions on the governance and supervision of state-owned enterprises. These departmental regulations for state-owned asset supervision are published by department heads or signed by governors, chairpersons of autonomous regions, mayors, or mayors of autonomous prefectures, and are more specific and operational. These norms mainly include: "Notice on Accelerating the Construction of Internal Control Systems for Central Enterprises"; "Implementation Measures for Accountability for Violations of Business Investment by Central Enterprises (Trial)"; "Guidelines for Comprehensive Risk Management of Central Enterprises"; "Opinions of the Shandong Provincial Committee of the Communist Party of China and the Shandong Provincial People's Government on Deepening the Reform of Provincial State-Owned Enterprises and Improving the Management System of State-Owned Assets"; "Implementation Opinions of the General Office of the Shandong Provincial Committee of the Communist Party of China and the General Office of the Shandong Provincial People's Government on Deepening Key Work in the Reform of Provincial State-Owned Enterprises"; "Ten Opinions of the Shandong Provincial Committee of the Communist Party of China and the Shandong Provincial People's Government on Accelerating the Reform of State-Owned Enterprises."

(4) Administrative normative legal documents for corporate governance and state-owned asset supervision.Administrative normative documents are those issued by administrative agencies or organizations authorized by laws and regulations with public affairs management functions, according to their legal authority and procedures, excluding administrative regulations, decisions, orders of the State Council, departmental regulations, and local government regulations. They involve the rights and obligations of citizens, legal persons, and other organizations, have general binding force, and are repeatedly applicable within a certain period. Normative documents can be divided into those issued by central institutions performing investor responsibilities regarding management matters of central enterprises and those issued by local institutions performing investor responsibilities regarding management matters of local enterprises.

The system of normative documents for corporate governance and state-owned asset supervision is vast, with specific matters and strong operational norms. These norms mainly include: "Notice of the Shandong Provincial State-Owned Assets Supervision and Administration Commission on Issuing the Power List of the Shandong Provincial State-Owned Assets Supervision and Administration Commission"; "Notice of the Shandong Provincial State-Owned Assets Supervision and Administration Commission on Issuing the List of Powers and Responsibilities of the Investor Supervision of the Shandong Provincial State-Owned Assets Supervision and Administration Commission"; "Notice of the Shandong Provincial State-Owned Assets Supervision and Administration Commission on Issuing the List of Authorized Powers of the Shandong Provincial State-Owned Assets Supervision and Administration Commission"; "Notice of the Shandong Provincial State-Owned Assets Supervision and Administration Commission on Issuing the Management Measures for the Formulation of Articles of Association of State-Owned Enterprises in Shandong Province"; "Opinions on Deepening the 'Three Major and One Large' Decision-Making System of State-Owned Enterprises in Shandong Province"; "Opinions of the Shandong Provincial State-Owned Assets Supervision and Administration Commission on Comprehensively Promoting the Construction of Law-Based State-Owned Enterprises." These are all normative documents regarding the management of local enterprises issued by local institutions performing investor responsibilities.

(1) Governance Institutions of State-Owned Enterprises

The corporate governance mechanism is an operational mechanism where the internal power institutions, decision-making institutions, executive institutions, and supervisory institutions of the company are independent, with clear responsibilities and powers, and mutually check and balance each other. The corporate governance institutions refer to the collective term for power institutions, decision-making institutions, executive institutions, and supervisory institutions.

According to the relevant provisions of the Company Law, the company's shareholders' meeting (or shareholders), board of directors (or executive directors), board of supervisors (or supervisors), and management together constitute the modern corporate governance structure. However, for state-owned enterprises, according to the relevant provisions of the "Regulations on the Work of Grassroots Organizations of the Communist Party of China in State-Owned Enterprises (Trial)" the party organization is written into the articles of association and implements the legal status of the party organization in the corporate governance structure. The party organization is an important component of the corporate governance structure of state-owned enterprises. Therefore, the shareholders' meeting (or shareholders), party committee (or party branch), board of directors (or executive directors), board of supervisors (or supervisors), and management are the basic corporate governance institutions of state-owned enterprises.

(2) Responsibilities and boundaries of the corporate governance structure of state-owned enterprises.

The responsibilities of the corporate governance structure of state-owned enterprises are mainly reflected in the relevant rights and responsibilities provisions of the Company Law and the articles of association, as well as the responsibility list formulated by the authorized entities. Corporate governance compliance refers to the shareholders' meeting (shareholders), party committee, board of directors, management, and other corporate governance institutions performing their duties in accordance with the relevant provisions of the Company Law, the "Regulations on the Work of Grassroots Organizations of the Communist Party of China in State-Owned Enterprises (Trial)", the articles of association, and the responsibility list.

1. Shareholders' meeting (shareholders). According to Article 7 of the "Management Measures for the Formulation of Articles of Association of Provincial State-Owned Enterprises in Shandong Province", the provisions of the investor institution or shareholders' meeting should be expressed in accordance with the Company Law, the Enterprise State-Owned Assets Law, and other relevant laws and regulations, clarifying the scope of authority of the provincial state-owned assets supervision and administration commission or the shareholders' meeting.

(1) Responsibilities of the institution performing the investor's duties. According to Articles 12 and 14 of the Enterprise State-Owned Assets Law, the institution performing the investor's duties represents the local people's government at the same level and enjoys the rights of the investor, such as asset income, participating in major decisions, and selecting managers for state-funded enterprises. The institution performing the investor's duties shall formulate or participate in the formulation of the articles of association of state-funded enterprises in accordance with laws and administrative regulations. The institution performing the investor's duties shall perform its responsibilities in accordance with laws, administrative regulations, and the articles of association, safeguard the rights and interests of the investor, and prevent the loss of state-owned assets. The institution performing the investor's duties shall maintain the rights that the enterprise enjoys as a market entity according to law and shall not interfere in the enterprise's business activities except for performing the investor's duties according to law.

(2) Legal powers of the shareholders' meeting (shareholders). According to the provisions of the Company Law, the shareholders' meeting of a limited liability company is composed of all shareholders. The shareholders' meeting is the power institution of the company and exercises its powers according to law. The shareholders' meeting exercises the following powers:

A. Decide on the company's business policies and investment plans; B. Elect and replace directors and supervisors who are not representatives of employees, and decide on matters related to the remuneration of directors and supervisors; C. Review and approve the board of directors' report; D. Review and approve the board of supervisors' or supervisors' report; E. Review and approve the company's annual financial budget plan and final accounts plan; F. Review and approve the company's profit distribution plan and loss compensation plan; G. Make resolutions on increasing or decreasing the registered capital of the company; H. Make resolutions on issuing corporate bonds; I. Make resolutions on the company's merger, division, dissolution, liquidation, or change of corporate form; J. Amend the articles of association; K. Other powers stipulated in the articles of association.

For the matters listed in the previous paragraph, if all shareholders express their consent in writing, a shareholders' meeting does not need to be convened, and a decision can be made directly, with all shareholders signing and sealing the decision document.

2. Party Committee (Leading Party Group). State-owned enterprises should incorporate the requirements of party building work into the articles of association, specifying the responsibilities, authority, organizational structure, operational mechanisms, and basic guarantees of the party organization, clarifying that the research and discussion by the party organization is a prerequisite procedure for the board of directors and management to make major decisions, and implementing the legal status of the party organization in the corporate governance structure.

(1) Organizational structure. The party organization of state-owned enterprises adheres to and improves the leadership system of "dual entry and cross-appointment". Qualified members of the party committee (leading party group) can enter the board of directors, board of supervisors, and management through legal procedures, and qualified party members among the members of the board of directors, board of supervisors, and management can enter the party committee (leading party group) in accordance with relevant regulations and procedures.

The secretary of the party committee (leading party group) and the chairman of the board are generally held by one person, and the party member general manager serves as the deputy secretary. If it is necessary for the senior enterprise leaders to concurrently serve as the chairman due to work needs, the party secretary can be held by the party member general manager or can be separately appointed, depending on the actual situation of the enterprise.

In independent legal entities without a board of directors but with an executive director, the party secretary and the executive director are generally held by one person. If the general manager is a separate position and is a party member, they should generally serve as the deputy secretary of the party committee.

For non-independent legal entities such as branches, whether the party secretary and the general manager are separate positions should be determined based on actual conditions. If they are separate, the party secretary generally serves as the deputy general manager, and the party member general manager serves as the deputy secretary of the party committee.

The party committee (leading party group) of central enterprises is equipped with a full-time deputy secretary, who generally enters the board of directors and does not hold a position in the management, focusing on party building work. Central enterprises with a large scale and a significant number of employees and party members can equip a full-time deputy secretary. The head of the internal discipline inspection organization in the party committee (leading party group) of state-owned enterprises generally does not hold other positions, and if it is necessary to hold concurrent positions, it must be approved by the higher-level party organization.

The party organization of state-owned enterprises implements a system of collective leadership and individual responsibility, and the members of the party organization leadership team entering the board of directors, board of supervisors, and management must implement the decisions of the party organization.

(2) Responsibilities and authority. The party committee (leading party group) of state-owned enterprises plays a leading role, guiding direction, managing the overall situation, and ensuring implementation, discussing and deciding on major matters of the enterprise according to regulations. The main responsibilities are:

A. Strengthen the political construction of the party in the enterprise, adhere to and implement the fundamental system, basic system, and important system of socialism with Chinese characteristics, and educate and guide all party members to maintain a high degree of consistency with the Party Central Committee with Comrade Xi Jinping at its core in political stance, political direction, political principles, and political path;

B. Deeply study and implement Xi Jinping's Thought on Socialism with Chinese Characteristics for a New Era, learn and promote the party's theory, implement the party's guidelines and policies, and supervise and ensure that the major decisions and deployments of the Party Central Committee and the resolutions of higher-level party organizations are implemented in the enterprise;

C. Research and discuss major operational and management matters of the enterprise, supporting the shareholders' meeting, board of directors, board of supervisors, and management in exercising their powers according to law;

D. Strengthen leadership and oversight in selecting and employing personnel in the enterprise, and focus on building the leadership team and talent team of the enterprise;

E. Fulfill the main responsibility for the construction of the party's work style and clean government, lead and support the internal discipline inspection organization to perform its supervisory and disciplinary responsibilities, strictly enforce political discipline and political rules, and promote the comprehensive and strict governance of the party to extend to the grassroots level;

F. Strengthen the construction of grassroots party organizations and the party member team, uniting and leading the staff and workers to actively participate in the reform and development of the enterprise;

G. Lead the ideological and political work, spiritual civilization construction, and united front work of the enterprise, and lead the enterprise's trade union, youth league, women's organization, and other mass organizations.

The party branch (party general branch) of state-owned enterprises and the party committee established in internal institutions carry out work around production and operation, playing a role as a stronghold. The main responsibilities are:

A. Learn, promote, and implement the party's theory and guidelines, publicize and execute the resolutions of the Party Central Committee, higher-level party organizations, and this organization, uniting and leading the staff and workers to complete various tasks of the unit.

B. Participate in the decision-making of major issues in this unit according to regulations, and support the unit leader in carrying out work.

C. Carry out education, management, supervision, service, and development work for party members, strictly adhere to the party's organizational life, organize party members to strive for excellence, and fully play the exemplary role of party members.

D. Maintain close contact with the staff and workers, promote the resolution of their reasonable demands, and earnestly carry out ideological and political work. Lead the trade union, youth league, women's organization, and other mass organizations in this unit, and support them in carrying out work independently according to their respective charters.

E. Supervise party members, cadres, and other staff of the enterprise to strictly comply with national laws and regulations, as well as the enterprise's financial and personnel systems, and safeguard the interests of the state, collective, and the public.

F. Provide practical suggestions and opinions on party building and party work, and report important situations to the higher-level party organization in a timely manner. Inform party members and the public about the party's work according to regulations.

(3) The relationship between party leadership and corporate governance. The party committee (leading group) of state-owned enterprises should formulate a list of matters for research and discussion based on the actual situation of the enterprise, clarifying the responsibilities and powers of the party committee (leading group) and other governance entities such as the board of directors, supervisory board, and management team. In independent legal entities without a party committee that have significant decision-making power over personnel, finances, and assets, the party branch (party general branch) is generally led by a party member in charge who serves as the secretary and committee member, and the party branch (party general branch) collectively researches and oversees major matters of the enterprise. Major operational and management matters of state-owned enterprises must be researched and discussed by the party committee (leading group) before decisions are made by the board of directors or management team. The matters for research and discussion mainly include:

A. Major measures to implement the decisions and deployments of the Party Central Committee and to carry out national development strategies; B. Enterprise development strategies, medium and long-term development plans, and important reform plans; C. Principle and directional issues in enterprise asset restructuring, property transfer, capital operations, and large investments; D. Setting up and adjusting the enterprise's organizational structure, and formulating and amending important rules and regulations; E. Major matters related to enterprise safety production, maintaining stability, employee rights, and social responsibility; F. Other important matters that should be researched and discussed by the party committee (leading group).

3. Board of Directors (Executive Director). The board of directors is responsible for setting strategies, making decisions, and preventing risks. Clarify the matters authorized by the State-owned Assets Supervision and Administration Commission or the shareholders' meeting to the board of directors, and establish mechanisms for the board of directors to report to the State-owned Assets Supervision and Administration Commission or the shareholders' meeting, review the legality and compliance of major decisions, and track the implementation of board resolutions.

(1) Composition of the Board of Directors. A limited liability company shall have a board of directors consisting of three to thirteen members; a limited liability company with fewer shareholders or smaller scale may have one executive director without a board of directors. The executive director may also serve as the company manager. The powers of the executive director are defined by the company's articles of association.

State-owned sole proprietorships and wholly state-owned companies should ensure that external directors constitute a majority in principle. In limited liability companies established by two or more state-owned enterprises or other state-owned investment entities, there should be employee representatives among the board members; other limited liability companies may also have employee representatives on the board. Employee representatives on the board are elected by company employees through employee representative assemblies, employee meetings, or other democratic means. The board of directors shall have one chairman and may have a vice chairman. The method for selecting the chairman and vice chairman is defined by the company's articles of association.

The term of office for directors is defined by the company's articles of association, but each term shall not exceed three years. Directors may be re-elected upon the expiration of their term. If the term of a director expires and a timely re-election is not held, or if a director resigns during their term resulting in the number of board members falling below the legal requirement, the original directors shall continue to perform their duties according to laws, administrative regulations, and the company's articles of association until the newly elected directors assume office.

(2) Powers of the Board of Directors. The board of directors is accountable to the shareholders' meeting and exercises the following powers:

A. Convene meetings of the shareholders' meeting and report work to the shareholders' meeting; B. Execute the resolutions of the shareholders' meeting; C. Decide on the company's business plans and investment proposals; D. Formulate the company's annual financial budget and final accounts; E. Formulate the company's profit distribution plan and loss compensation plan; F. Formulate plans for increasing or decreasing registered capital and issuing corporate bonds; G. Formulate plans for mergers, divisions, dissolutions, or changes in the form of the company; H. Decide on the establishment of internal management institutions; I. Decide on the appointment or dismissal of the company manager and their remuneration, and based on the manager's nomination, decide on the appointment or dismissal of the deputy manager, financial officer, and their remuneration; J. Formulate the company's basic management system; K. Other powers stipulated in the company's articles of association.

(3) Convening and presiding over board meetings. Board meetings are convened and presided over by the chairman; if the chairman is unable to perform their duties or does not perform their duties, the vice chairman shall convene and preside over the meeting; if the vice chairman is also unable to perform their duties or does not perform their duties, a director shall be jointly elected by more than half of the directors to convene and preside over the meeting.

The methods of deliberation and voting procedures of the board of directors, except as provided by law, are defined by the company's articles of association. The board of directors shall keep minutes of the decisions made on the matters discussed, and the directors present at the meeting shall sign the minutes. Voting on board resolutions shall be conducted on a one-person-one-vote basis.

4. Management Team. The management team is responsible for business operations, implementation, and strong management. The general manager is accountable to the board of directors and exercises powers such as production operations and organizing the implementation of board resolutions, reporting work to the board of directors. A limited liability company may have a manager, who is appointed or dismissed by the board of directors. The manager attends board meetings. The manager is accountable to the board of directors and exercises the following powers:

(1) Preside over the company's production and operational management work, and organize the implementation of board resolutions; (2) Organize the implementation of the company's annual business plan and investment proposals; (3) Draft plans for the establishment of internal management institutions; (4) Draft the company's basic management system; (5) Formulate specific regulations for the company; (6) Propose the appointment or dismissal of the deputy manager and financial officer; (7) Decide on the appointment or dismissal of other management personnel not subject to board decision; (8) Other powers granted by the board of directors. If the company's articles of association provide otherwise regarding the powers of the manager, those provisions shall prevail.

5. Supervisory Board. A limited liability company shall have a supervisory board consisting of no less than three members. A limited liability company with fewer shareholders or smaller scale may have one or two supervisors without establishing a supervisory board. The supervisory board should include shareholder representatives and an appropriate proportion of employee representatives, with the proportion of employee representatives not less than one-third, and the specific proportion defined by the company's articles of association. Employee representatives on the supervisory board are elected by company employees through employee representative assemblies, employee meetings, or other means.

(1) Inspect the company's finances; (2) Supervise the actions of directors and senior management in performing their duties, and propose the dismissal of directors and senior management who violate laws, administrative regulations, the company's articles of association, or resolutions of the shareholders' meeting; (3) When the actions of directors and senior management harm the company's interests, demand that they be corrected; (4) Propose to convene an extraordinary shareholders' meeting and convene and preside over the meeting when the board of directors fails to fulfill its legal responsibilities to convene and preside over the shareholders' meeting; (5) Submit proposals to the shareholders' meeting; (6) Initiate lawsuits against directors and senior management in accordance with the provisions of the Company Law; (7) Other powers stipulated in the company's articles of association.