Study Of Independent Directors From Civil Liability

Along with the promulgation and implementation of the new corporation law and the new security law in China, the Chinese legal system has been further improved and the shareholders have lifted their awareness of protecting their legitimate rights. Consequently, it has become a common concern for various parts to call to account of those independent directors on board in charge of monitoring as watchdog in listed companies who are not law-abiding by conducting a violation against relevant regulations and laws. However, controversy in theory and the lack of regulations and judicial practices about the legal liability of independent directors in China severely hinders their existence and development. Facing to this situation, this thesis fosters such a conclusion that the proper attitude to be adopted towards the independent directors of board should be: the rights and obligations should be made clear, the limits of responsibilities should be clarified, corresponding responsibilities should be required of relevant person of charge and the protection mechanism should be established. In comparison with the normal directors in corporation, the rights of independent directors fall into two major categories. One is the right to know, while the other is the right of supervision with the former as the basis of the latter while the latter as the goal of the former. The same as the normal directors, independent directors take the duty of loyalty and care. The duty standard of loyalty of independent directors is not distinct and not lower than normal ones. Regarding to duty of care, the duty of care of those independent directors should be specified taking their personal expertise into consideration on the basis of average level of duty of care. In the aspects of liability, the principle of fault liability should be taken in case that independent directors fail to take the obligations. Moreover, gross negligence standard prevails when they breach the obligations of care. This thesis also takes emphasis on the liability that the independent directors should take under different circumstances in purpose of drawing a clear line for the liability of independent directors to urge them to perform their duties and perfect the corporation governance. Moreover, a barrier should be built to protect independent directors from innocent litigation and unnecessary risks. This thesis intends to bring forward a suggestion that relevant protective measures should be taken such as the establishment of independent director's liability insurance system so that both the rights and obligations of corporation, shareholders and independent directors will be made clear and the interests will be more balanced. We have reasons to believe that along with its establishment and perfection of the independent director's liability system, independent directors will play a more important role in corporation governance.