Independent Director System Of Listed Companies In China

There is some controversy in theory during the building process of the institution of independent director in China's listed company. Since 1990s, many corporate governance principle and code of best practice in the world suggest the company should introduce the outside director into the board, especially independent director. China has adopted the advice and became part of the corporate governance reform in the world. But domestic scholars have different viewpoint about this institution. So it's necessary for us to make a more thorough comprehension about it. In Accordance with our practice situation, I make a preliminary evaluation about this system and give some advice to improve the validity of the institution for the policy-maker.Firstly, I analysis the strongpoint and shortcoming of the modern corporate institution, point out that the principle-agent problem is of endogenesis in the modern corporate institution. And the endogenesis of the principle-agent problem induce the endogenesis of the board of directors. If the ownership is too disperse or too centralized, the board may be malfunction. If it is disperse, the manager may control the company, this is the so called insider controls, if there is a big stockholder who can compete with the manager ,it can restrain the effect of the insider controls. When the ownership is centralized, the biggest stockholder will control the company, it's another types of insider control dominated by the stockholder. The solution of the insider controls is the institution of independent director. Then we compare three types of corporate governance models, point out each strongpoint and shortcomings. Chinese corporate governance model is a mixed type, but it lacks an effective outside governance mechanism comparing with the unitary board. It lacks the balance mechanism among big stockholders comparing with the unitary board. And it has no superiority in management efficiency and lower costs of principle-agent problem in family model. So our corporate governance mechanism is malfunction. By introducing institution of independent directors, it can reduce the effect of the insider controls; independent directors may be more effective in monitoring the manager and the big stockholder than...