On The Independent Director System In Corporation Governance

The corporate governance is a hot topic of recent years' discussion surrounding the company law. Because of the rapid progress made by American Economy in 1990s, great attention began to be attached on its corporate governance. In particular, the independent directors system born in the U.S.A became the focus of global research on corporate governance. In 2001, China Securities Regulatory Commission formulated the Guidelines for Introducing Independent Directors to the Board of Directors in Listed Companies (herein after"guidelines"). From then on, Independent Director System (herein after"IDS") began to be officially introduced into China. However, more than 5 years have passed without the effective performance of IDS expected by China Securities Regulatory Commission (herein after"CSRC"). Thus, criticism of the system increasingly comes throughout the country. How about its future in China? In order to find an answer to this question, we should study on the origin of IDS, the development of IDS, the theoretical basis of IDS and the practice of IDS in China. After that, we can find some new ways to perfecting Chinese IDS.This dissertation is divided into four parts, the main content list as follows:Chapter one shows basic content of the IDS systematically. First, defining the concept of independent director. The name of"independent directors"appeared in replacement of its previous name-"non-employee directors"-in the 1930s'and 1940s'America. However, up to now, an unified authoritative description concerning the definition of independent directors hasn't been offered yet. According to different standards, directors can be divided into"inside directors"and"outside directors","executive directors" and"non-executive directors"and"independent directors"and"dependent directors". Contrasting these definitions, we can know the connotation of independent director clearly. Second, studying on the origin of IDS. The birth of IDS made Americas be satisfied with the improvement of the old governance mode, and refused to change the traditional one. The corporate governance adopted by Britain and American has a defect hiding in the convergence of executive system and supervisory system, which leads to the low efficiency of corporate supervision. This is the main cause leading to the appearance of IDS. Finally, discussing on the legal practice of IDS in the world.Three basic theories of IDS are presented in chapter two: the agency theory, power shifting theory and the interest-related theory. In the agency system, the interests of client and that of agent are not always in harmony with each other. So one problem exist: How to make agents perform their duties conscientiously, and realize the target of client. In the agent system, the cause of"control by insiders"is that the directors as the client don't have enough ability to select and control the managers. As for the essential role played by independent directors in rectifying the agency relationship, they can prevent the"control by insiders"from happening and restrain the big shareholders. The separation of ownership and control and the agency theory result in the two changes of the power center in corporations. The power shifting not only realized the high efficiency, but also expanded the power of directors and managers. Once the company is in the charge of managers, the appearance of"control of insiders"can't be avoided. In the power shifting theory, the function of independent directors lies in supervising other directors and managers. Because of the interest-related theory, as the non-shareholder, independent director who can become a number of the board of directors participate in the corporate governance and harmonise the interest relationships in the corporation.Chapter three shows the practice of independent director in the corporation governance of our country. The author thinks that there three defects in the governance structure of the Listed Companies of our country. They are"one share dominating", the malfunction of director board and that of supervisor board. Because of the three defects, the problems become more and more serious that the holding shareholders embezzle the property of the Listed Companies uninhibitedly, conduct large numbers of connected deals with the Listed Companies and cheat mid-size and small shareholder. The coming of IDS is just in such a circumstance. The legal practice of IDS in our country goes forward with explorations. There has been some regulations about IDS in our country in 1997. In 2001, China Securities Regulatory Commission formulated the Guidelines, and then IDS began to be officially introduced into China. The new company law put into effect in 2006 formulated that there should be independent directors in Listed Companies and it provides a legal basis for the IDS. Because of the difference between western countries and our country, a lot of problems are exposed in the practice of the system in our country, such as the lack of independent character, the limited energy spend on Listed Company, the shortage of management experience and the blurry boundary between the board of directors and the board of supervisors. The appearance of weakness shouldn't tell us to deny the system blindly, contrarily, it tells us that we should consider the system deeply and find a effective operation mechanism of IDS.In chapter four, the author gives several advices about how to perfect the IDS. Firstly, the independent character is not only the most important quality of independent director, but also the safeguard of the function of IDS. Secondly, a well working environment can guarantee the exercise of rights entitled to independent directors. Thirdly, the independent directors should be entitled proper rights to make sure that the function of independent directors should be realized. In order to make the independent directors treat their rights and duties seriously, the legal liability shouldn't be forgotten. Finally, in today's China, such person is rare who is suitable for the independent director position. So educating the person who is suitable for that position is a long and arduous project.