Study On The Obligations Of Independent Directors

Today when the board becomes the core of modem enterprise system for decision-making,the system of independent directors has developed to one of the most important mechanisms of the board for balancing controlling shareholders and the management in the corporate governance structure.Independent directors participate into corporate decision making,supervise the excise of operating management right by the management and thereby protect and safeguard the interests of the company,shareholders and stakeholders on an independent basis.The system of independent directors has existed in China for over ten years and the revised Company Law in 2005 gives formal recognition of the legal status of independent directors.As a significant constituent part of China's corporation governance structure of listed company,the legal system of independent directors has drawn more and more attention from listed companies and social public.However,meanwhile we are clearly aware of that in practice,the system of independent directors encounters many questions.Though many listed companies establish their Working Regulations corresponding in accordance with the regulatory requirements,the balancing and restrictive mechanism to controlling shareholders,the management and the board of the company fails to come into being in the substantial sense.The independent directors have became honorary and marginalized,resulting in the independent directors being just mere formality instead of performing their due roles.The reasons lie in unclear, unspecific and unsystematic system of independent directors,especially that too general and broad provisions about the obligations of independent directors give flexibility and liberty to the implementation, affecting the exertion of functions of this system to certain degree.By employing such research methods as comparative analysis,solid evidence analysis and logical reasoning in a comprehensive way,the paper conducts a relatively systematic study on the obligations of independent directors,focusing upon analyzing and stating theoretical basis for and main structure of their obligations and discussing significant influences of the performance of obligations on value fulfillment of the system and making a preliminary research on their obligations and improvement of the system.The positioning of duties of independent directors is determined by means of discussing their obligations and theoretical basis and differentiating and analyzing the definition and characteristics of independent directors while the theoretical basis for the system is explored.Analysis and explanation are made concerning due obligations of independent directors at the corporate level,including the duty of loyalty and the duty of diligence,and the differences about performance standards with general directors are presented.In addition to performance of related obligations to the company,independent directors must fulfill special obligations to the social public,e.g.Information Disclosure to Public and Controls of Related Party Transactions in the aspects of safeguarding informed right of shareholders,protecting interests of Small and medium-sized shareholders,supervising real company controllers and the Senior management and are provided with special systematic arrangement due to their distinctive legal status and characteristics. The paper puts the four main proposals about performance of obligations of independent directors and opinions on relevant system improvement:First,the legislation suggestions on confirm the obligations of independent directors for building the legal basis.Second,to continuously strengthen and maintain the independence of independent directors.Third,to improve external environment and promote the implementation of performance evaluation and incentive mechanism. Fourth,to reinforce legal protection and strengthen legal responsibilities of independent directors.