Core Viewpoint - The optimization of corporate governance structures in the A-share market is gaining momentum, with 1975 companies initiating the cancellation of supervisory boards this year, representing over half of listed companies, indicating a shift towards modern governance standards [1][2] Group 1: Background and Historical Context - The establishment of the supervisory board system was driven by the need for power balance in the early stages of capital market development, aimed at protecting shareholder rights, especially those of minority shareholders [1] - The supervisory board played a crucial role in preventing internal control and regulating business conduct during specific phases of capital market development [1] Group 2: Current Challenges and Legal Framework - The supervisory board system has revealed shortcomings such as lack of professional oversight and delayed information acquisition as the capital market matures and business complexity increases [2] - The new Company Law, effective July 1, 2024, allows companies to establish audit committees within the board of directors to assume the supervisory board's functions, with a deadline for implementation set for January 1, 2026 [2][3] Group 3: Advantages of the Audit Committee - The audit committee is expected to have stronger professional independence, as its members are required to have financial and legal expertise, with independent directors holding a majority [2][3] - The audit committee can participate directly in major decision-making processes, shifting the supervision from a post-event check to real-time oversight, enhancing risk prevention capabilities [3] - The internalization of supervisory functions within the board clarifies responsibilities, ensuring that the board must support the audit committee's work, thus avoiding previous governance issues of overlapping responsibilities [3] Group 4: Implementation and Future Outlook - The effectiveness of the reform hinges on the audit committee's ability to fulfill its supervisory role, which requires stringent criteria for member qualifications, detailed operational guidelines, and transparent communication with minority shareholders [3][4] - The transition from supervisory boards to audit committees represents a fundamental shift in the logic of market supervision, focusing on effectiveness over mere compliance, which is expected to enhance shareholder protection and market order [4]