On The Mechanism Of Internal Control Of Listed Companies

The concept of independent director system was originated from US, which is also as known as external director system. In the formal legal documents, independent director is also called uninterested director who is appointed to solve conflict of interest issues. After the system of independent director was introduced into China, how to coordinate the relationship and supervisory duty between independent director system and the already existed board of supervisors system become the key issue regarding improving the internal control mechanism of listed companies.The first part mainly discusses several theories for coordinating the independent director system and traditional board of supervisors system, like the choice between single track and double track system. On this basis, this part further discusses the necessity of co-existence mode for these two systems. The reasons for adopting the co-existence mode are because independent director has a high level of expertise which can enable it has more advantages to supervise the management team.The second part mainly discusses the conflicts between the independent director system and traditional board of supervisors system. Because these two systems were originated from two completely different legal systems, just adopt theses two system without any amendment would raise more conflicts. Therefore, in order to make these two systems complement each other, we have to figure out certain ways to improve the legislation.The third part amplifies several suggestions for improving the legislation in relation to the adoption of independent director system in China. China Company Law lacks the provisions concerning the appointment and removal of independent director. Bin Tie suggested that cumulative voting system shall be adopted.The forth part is the conclusion which states that in order to improve internal monitoring mechanism of listed companies, a clear boundary line shall be drew between the independent director and board of supervisors by the legislation. In addition, because the effectiveness of the operation of these two mechanisms are still dependent on its construction of the social environment, a thorough reform of property rights system and improvement of social comprehensive monitoring system became the key to solve this problem which means the government, judicial authority, CSRC, independent director and board of supervisors shall all work together to build a effective monitoring system.