Study On Barriers In Localization Of Independent Director System

Based on corporation legislation of Germany and Japan, the corporation law of China established paralleled binary administering structure of the boarder of directors in 1993. According to this structure, the board of supervisors and the board of directors, delegated by AGM, share the executive power of management. They are independently responsible to AGM, with the board of directors in charge of administration and the board of supervisors in charge of supervision. In the year 2001, in order to consolidate supervision of listed companies and protect the interests of medium and small stockholder, CSRC implemented independent director system which originated from the common law system, and required listed companies to have independent director in addition to the board of supervisors, both of which are responsible for supervision of the company.However, the introduction of independent director does not eliminate illegal and inappropriate behaviors of senior managers of listed companies, nor does it improve the efficiency of supervision and management. In some cases, independent director were actually involved in those illegal and inappropriate dealings, and even get penalized together with company's directors and supervisors.This paper pointed out two essential causes of independent director's dilemma through data analyzing. Firstly, relationships between independent director and the board of supervisors were not straightened out, with their orientation of characteristics and responsibilities unclear, while cooperation and coordination are inadequate, leading to the failure of establishing a harmonized and efficient supervising mechanism which should have clear-cut division of labor and binary restrictions. Consequentially, countervailing and conflicting factors existed in companies'supervision mechanism; impeding, wrangling, shuffling and credit-contending greatly weaken supervision efficiency. Secondly, the establishment of independent director system is purely inflexible copying of US and UK's experiences, which lacks consideration of Chinese specific structures of stock rights and companies. Inevitably, that makes independent director exist in name only and un-independent, makes it unable to realize its expected effect.Aiming at"Seamlessly wedge"rather than"forced wedge"independent director system into Chinese firm administering system with its design philosophy and jurisprudence spirit, this paper pointed out that perfection and establishment of independent director system should proceed from eliminating its dual obstacles during its localization. The authority and responsibility between independent director and the board of supervisors should be reassigned while overlapping in authority should be eliminated, to set up a compatible and closely-linked mechanism of supervision, while new legislation is needed to give the board of supervisor's authority over undefined issues. This paper focused on the independence of independent director, suggests integrity of regulation of independent director, elimination of inner contradictions and conflicts, and gives corresponding improvement suggestions in identifying, selecting, encouraging, enforcement and responsibilities taking of independent director.