Independent Director And Corporate Governance Of Investment Bank

This article probes deep into the concrete strategies on the establishment of independent director system of the investment bank from a new angle of the governance relationship between independent director and investment bank, so as to bring into play the active role of independent director in the corporate governance of investment bank.In our country,"quasi investment banks"refer to securities companies, trust and investment companies, investment consultancy companies, asset (fund) management companies and so on, the depth and scope of their business can't be compared with investment banks in the world in general. Many securities companies, as the man body of the investment banks, are not qualified according to the world standard and definition on modern investment bank. The most important thing is, young as they are, the hidden problems in it are startling. With the continuous fall of the stock market in recent years, investment banks in China are undergoing unprecedented crisis, and more than 20 investment banks have been cancelled, closed or entrusted to others.What does this mean? It accounts for 15 percent of the total number of 130 securities companies by the end of June 30,2004?! Then what on earth is the reason for the continuous mishaps in investment banks in China? Is it really because of the sluggish stock market, the historic and systematic drawback and the unfavorable policy environment? No, it is the inherent systematic drawbacks of the investment banks, in particular, the drawbacks in the corporate governance, and the disorderly management, which have resulted in the wanton and willful misbehavior among its staffs, which have done great harm not only to the companies, shareholders and other related groups, but also caused the cancellation, closing and entrustment to others .The fall of the stock market is only the blasting fuse leading to its ruin. Therefore, we must establish the independent director system of the investment bank, enhance the momentum of supervision, prevent financial risks and facilitate the improvement of corporate governance of investment bank and the governance efficiency.However, the irony is that it is just the sector of investment bank, which is supposed to be capable of best implementing the independent director system, lacks this system, while its characteristics of high capital intensity and risks and so on requires an independent director system as an independent external supervision force, and meanwhile also a more stricter corporate governance than other companies in general. Therefore, this article takes as its background the development of China's investment bank since reform and opening up, makes a comprehensive historic and dialectical analysis of the relationship between independent director and big shareholders, independent director and small shareholders, independent director and related parties, independent director and board of directors, independent director and the management level, independent director and board of supervisors in the investment bank, utilizing analytical method of economics, law, philosophy and organizational behavior, and endeavors to find out the law of corporate governance and the premium scheme for the design of independent director system and work out suggestions and countermeasures which can give play to the role of independent director in the corporate governance of the investment bank.Control by big shareholders is the first problem to be addressed in the corporate governance of investment bank. Thus, the article analyses the tunnel behavior under control by big shareholder from theory and experimental studies, and reaches the conclusion through analysis of the game theory between big shareholder and independent director: if the design of independent director is scientific, then, the probability for independent director and big shareholders to observe the regulations will be greatly increased, and the aim of the system design can be easily achieved. That is to say, we can achieve the balance between independent director and big shareholders through system design; that is to say, fine independent director system can prevent the tunnel behavior of big shareholders.In the analysis of the relationship between independent director and small and medium-sized shareholders and related interested parties, the article studies the positioning of independent director system of the investment bank, and defines that the major obligation of the independent director is to protect the interests of related parties and supervise the behavior of internal persons on behalf of small and medium-sized shareholders.In the analysis of the relationship between independent board of directors and board of supervisors, the article mainly discusses the mechanism for the role-playing of independent director and its jurisdictions with the purpose of improving the structure of board of directors and correctly handling the relationship with board of supervisors and to complement each other in advantage, to achieve mutual supervision, to exercise its duty and be responsible for its own obligations.The core of the corporate governance lies in the relationship between independent director and high-level executives. Thus, the article reaches two conclusions by using the theories of principal-agent and organizational behavior, through studies on the supervision, restriction and incentives on independent director and high-level executives and the relationship between independent director and CEO, and combining analysis of the game theory: the first is that only by guaranteeing the independence of independent director, can it be possible to make independent director become real main body of principal-agent relationship, solving the problem of lack of entrustee which results in the lack of supervision and fidelity; the second is that there should be adequate incentives to spur independent director to conduct supervision.Finally, on the basis of analysis of the relationship between independent director and other main bodies in the corporate governance, the article works out a set of system framework of independent director of investment bank in China, and puts forward concrete suggestions on the role of independent director played in the corporate governance of investment bank for the reference of police-makers, investment banks and other related institutions.