Research On The Impact Of Kangmei’s Penalty On The Performance Of Independent Directors In The Capital Market

Since Tsingtao Brewery was the first to set up independent directors(hereinafter referred to as "independent directors")in 1993,the functions of independent directors have been widely questioned in practice,and are often considered "not independent","not sensible" and "not responsible".In the 2019 Zhong’anke fraud incident,all three independent directors were fined heavily.After Zhangzidao was found to have engaged in financial fraud in 2020,four independent directors pleaded exemption for insufficient financial knowledge,but failed to evade the fine and were ultimately fined 30000 to 40000 yuan.On November 12,2021,the first instance judgment of Kangmei Pharmaceutical announced that five independent directors bear 5%-10%joint and several liability,involving a joint and several compensation scale of about122 to 246 million yuan,which is the highest case of compensation for independent directors in China so far.After being fined,Kangmei’s independent directors aroused widespread concern in the society.In response to the social concern,the CSRC officially released the Rules for Independent Directors of Listed Companies in January 2022,ushering in the watershed of the reform of the independent director system.On April 14,2023,the China Securities Regulatory Commission issued the "Management Measures for Independent Directors of Listed Companies(Draft for Soliciting Opinions)",which further refined the governance of listed companies and entered a new stage of precise efforts.Kangmei’s punishment has had a wide and profound impact on the performance of independent directors in the capital market.The direct reason for the high punishment is that the independent directors did not perform their duties diligently and responsibly,which is reflected in the main form of attending meetings through communication.After Kangmei was filed for investigation,the independent directors still did not raise any objections to major matters and failed to demonstrate substantive diligence.The indirect reason is that after the implementation of the new Securities Law,the principle of "zero tolerance and strong supervision" for illegal and criminal activities in the capital market has been implemented,becoming the highest compensation amount for independent directors in history.Based on this background,this article first reviews the background of China’s independent director system and the performance of independent directors;Subsequently,the impact of Kangmei’s punishment on the performance of independent directors in China was analyzed.The high amount of punishment has had a strong warning and deterrent effect on both listed companies and independent directors.Firstly,the resignation of independent directors has shown an explosive growth,with over 90% of non mandatory resignations.Secondly,more than half of the departing independent directors are university professors,and the majority of the replacement independent directors are practitioners.There has been a significant change in the identity of independent directors,and some of them have hastily taken office without obtaining qualification certificates.Thirdly,the performance of independent directors has become significantly more standardized,with a significant increase in the number of dissenting votes.Fourth,the sky high litigation compensation has also led to a sharp increase in the insurance premium rate and purchase volume of directors’ liability insurance of listed companies.Fifth,in order to balance the huge risks borne by independent directors,multiple listed companies issued announcements in 2022 to increase the allowance for independent directors.This study found that there are problems with the performance of independent directors,including short-term imbalance in the supply and demand of independent directors,and incomplete exit mechanisms.The reasons for the problems in the performance of independent directors are analyzed.Suggestions based on this include improving the exit mechanism for independent directors,increasing the budget for hiring third-party institutions for independent directors,and improving the liability insurance system for independent directors.I hope that this study has certain reference value for improving the performance ability of independent directors in listed companies,regulating their performance behavior,optimizing their performance environment,and improving the governance level of listed companies.