On The Situation And Improvement Of Independent Director System In China

In order to"further perfect the corporate governance of listed companies, and promote standardized operation of them ", in the beginning of this century, Guide Suggestion about Building Independent Director, which initially established the independent director system in our practice, is issued by the China Securities Regulatory Commission (CSRC). In 2005, the Company Law was revised, its article 123 said: "listed company shall have independent directors. And the concrete measures shall be formulated by the state council." This shows that the system of independent directors have changed from the original department regulations adjustment to the state's basic laws, legal status get promoted, also shows that the system of independent directors of specific measures under the state council may have launched by the administrative rules and regulations.Since the system of independent directors in China established, how about its operating status? What are the disadvantages? How to overcome these disadvantages? How to sort out all of ideas, to face reality, to perfect the system of independent directors? Based on this, the author thinks that the study to independent director system has important significance in theory and practice. Based on our independent director system as the research object, according to the problems found - the problems analysis– the problems solved logic thinking, this paper introduces the background and reasons why our country transplanted the system of independent directors; And then, the paper investigates the operating situation of the system of independent directors in our country; And on this basis, the paper analysis the reasons why the independent director system in our country is not ideal; At last, it gives the advisement how to perfecting the system of independent directors , so as to benefits the corporate governance in China. Paper is divided three chapters.Chapter I, this chapter introduces the background and reasons of transplanting the independent director system and its operating status. This chapter includes two aspects of content. Firstly, introduces the background of the independent director system. It is shown that with the deepening reform and opening up, the state-owned enterprises have been comprehensively reformed to be listed companies. A part of them achieved the overseas listing goal. Corporation, one kind of developed economic organization, has become an important component of our living national economy. But in our country, there are some problems such as"original monopoly of state-owned assets","insider-control","the board of supervisors is just nominal"exist in the listed company. In order to improve corporate governance structure, strengthening supervision mechanism, improve the management efficiency and competitiveness, at the same time, in order to promote the healthy development of the securities markets, our country transplanted the system of independent directors. Secondly, introduce the status of the independent directors system in China. On one hand, with the system of independent directors has been set up rapidly in most of listed companies in China, more and more listed companies hire independent directors; And because of that, the board structure changes in many companies; And in many companies ,a small minority of independent directors do play an effective role. On the other hand, independent directors nominated seriously by big shareholder. It makes them difficultly be truly independent, personnel composition of independent directors is not ideal. What is worse, in many companies it is a beautiful decoration. It is difficult for the independent directors to have a great influences and achievements.Chapter II, this chapter analyses the defects of our independent director system. There are four reasons causing the system of independent directors in China is operating no ideal. In the first place, the system of independent directors belongs to Anglo-American law system, and yet the system of supervisors is the continental law system. Two different kinds of corporate governance modes both coexist in the same corporate governance structure may also generate contradictions and conflicts. Through the comparison between the two boards, we can find that there is no clear cut between supervising power of independent director board and that of supervisory board. If one listed enterprise brings in independent directors as another new supervisors once more, there will be two supervising departments in one enterprise, and thus if the functions and powers of these two are not definitely divided and coordinated well, the supervising cost will be increased while the supervising efficiency will be decreased. The internal personnel of the enterprise will even make use of the conflict between the two parties. In the second place, it emphasized that there is no really independent for the independent directors. This issue can be seen in three aspects: the qualifications have drawbacks, the nomination and election are controlled by the large shareholders, and there is no procedure about dismiss. In the third place, the incentive mechanism our independent director system is not effective, and may even get a trauma allowance of independent directors'enthusiasm. A recent study finds that our independent director's salary is fixed, meanwhile there is no salary standard. Someone get high salary, but others get extremely low. But their efforts are the same. What makes matters even worse, there is no incentive regulation about reputation in our country. In the fourth place, it is lack of responsibility mechanism. From all the relevant laws and regulations, we can find no liability for independent directors, we can say there is no definite inquire-and-punish system to urge the independent directors to fully take their responsibilities and assume their obligations. Therefore, we have to investigate the responsibility of independent directors in accordance with the responsibility of normal directors only.Chapter III, this chapter is about the design on the independent director system in china. This chapter, on the basis of the second chapter, wants to find some measures be taken to better our independent director system. Measure one, Coordinate the relationship between independent directors and supervisors. No doubt, the corporate governance in US provides a good reference to china during establishing our independent director system. However, we should take much thing into account when transplanting the independent director system, especially the reconciliation of independent directors and board of the supervisors, which is the key to our success of transplanting independent director system. Measure two, perfecting the rules of independent directors appointed and discharged. We must take strict standards in the qualification of independent directors, only the people is truly independent, can he be voted to be an independent director. When the big shareholders elect independent directors at the shareholders'convention, the independent directors should be elected fairly, thus they could become real mouthpiece of the rights of the middle and small shareholders. The term a man as independent director should not be too long, three years is a better choice. At last, the procedure of discharge must be transparently. Measure three, perfecting the incentive mechanism. the author holds that the company should have comprehensive consideration about the law, economical environment, as well as the company's internal shareholding structure, etc, choose the appropriate incentive mode. Both remuneration incentive and reputation incentive should play effective role. Only in this way, can the independent directors work hard with their loyalty. Measure four, the establishment of independent directors'responsibility mechanism, the author holds that the mechanism should includes two aspects: on the one hand, to establish the responsibility system of independent directors, when the independent director has acts that are inconsistent with the obligation of fidelity to the company, he must be punished. Of course, we investigate the responsibility of independent directors must by the business judgment rule. On the other hand, we should perfect liability insurance mechanism. If independent directors provide best service for the company, their interests should be protected, and their risk should be considered. Thus the mechanism can stimulate their enthusiasm, make independent directors'decision-making more productive. Above all, during the process of transplanting the independent directors system, a series of problems, such as the reality of our existing corporate governance, the traditional legal culture, etc, need be taken into accountant and be solved. Only in this way, can the independent director system be successfully transplanted, and play its proper role.