A Study Of The Independent Directors System

The independent directors system came into being at the beginning of 20th century when the corporate governance structure in U.S. transferred from the"shareholders centralism"to the"director's centralism". During that period, shareholders played a weakening role in the corporate business and the phenomenon of inside control went out of control concomitant with the malfunctioning of the board of directors. After World War II, the"manager's revolution"boomed in developed countries with U.S. as the representative. In those countries, the managers, i.e. the executive directors and senior officers had such a defect control over the corporate decision making that the issue of inside control became increasingly serious. This factual background expedited the development of the independent directors system. By the 1980s the independent directors system had became fully developed and started being transplanted around the world after 1990s.The independent directors system was introduced into China in the 1990s as an effective means to set up a scientific corporation administrative structure in order to avoid the manipulation of the improper person and to protect the interest of medium and small sized shareholders. The guiding principles for listed company to set up the independent directors system was issued in the August 2001 by China Securities Regulatory Commission(CSRC)and ushered in the execution of the independent directors system in China. In the present time when large shareholders are liable to encroach on the interests of medium and small sized shareholders, how to draw inference from the independent directors system of the forerunning countries of this practice is of great significance not only for academicals study but also for social practice in China.The independent directors system has different functioning orientation in different corporate government systerms. Unlike civil law countries, U.S. and U.K. do not have a Board of Supervisors as the special supervising agency inside their corporations. And the shareholders are usually isolated from the day-to-day management due to the highly dispersed shareholding distribution. Under these circumstances, the function of independent directors is oriented to supervising executive directors and officers for fear of losing control of inside control. By contrast, due to the peculiar issues of highly concentrated shareholding structure and"one dominant shareholder"in China, the role of independent directors is oriented to supervising the insiders controlled by big shareholders in case that the big shareholders infringe the interest of other shareholders and the corporation itself in conspiracy with the insiders under their control. There are problems in the localization of the independent directors system in China. How to set up the independent directors system in China and bring it into full play is not only a problem for the theory study but also a key problem for the listed company to solve.There are six main problems in the localizing of the independent directors system in China, namely the qualification of the independent directors is not clear; the selection of the independent directors is not standardized; the responsibility system is not perfect; the system lacks a stimulating and limiting mechanism; the functions and powers of the independent directors and the Securities Regulatory Commission sometime have conflicts; the security system is absent for responsibility of the independent directors. This dissertation is based on the experiences of the forerunning countries of this practice and empirical research. Through analyzing the present situations of the implementation of the independent directors system in China, it proposes a new selection mechanism for the independent directors, issues a clear responsibility contents for the independent directors, calls for an effective stimulating and limiting mechanism, and advises to draw a clear line between the functions and powers of the independent directors and Securities Regulatory Commission and to set up a legal security system for the responsibility of the independent directors, in order to perfect the administrative structure of the listed companies and to protect the interests of medium and small sized shareholders and to advance the healthy development of the social market economy...