Review And Outlook Of The Establishment Of The Independent Director System

The corporate governance structure of this country is far from perfect and the check and balance of the governance powers fail, thus it is a widespread problem that the majority shareholders and the management profit at the companies' expenses which hurts the public shareholders. China Securities Regulations Commission enacted rules regarding the establishment of independent director governance mechanics, expecting to add independent directors into the existing governance structure of the board of directors and board of supervisors in order to improve the monitoring and managing of the companies. However, the rules aforementioned had not been recognized by statutes before a long time passed by. Although the recently revised Company Law supports the independent director governance mechanics, it does no more than generally grant the State Council the right to specify the contents thereof. During this country's slow process of advancing the independent director governance mechanics, scandals of corporate governance came to the notice of the public in the United States, which has already adopted the mechanics for a long time. The government and scholars of the States began to reflect on the corporate governance practice, and the corporate governance was sweepingly reformed, part of which is to strengthen the powers and roles of the independent director concerning corporate governance. In the meantime, Japan, the country, which used to have similar corporate governance structure as ours, revised its commercial code and allows the mechanics of independent director governance and the mechanics of board of supervisors to be chosen by the companies alternatively. This writing begins with discussing origins of the independent director governance mechanics, examines the experimental efforts to set up the mechanics, and proposes the furtherance thereof, in the context of the empirical evidences which can be drawn from the practice of the States and Japan. The writing develops in four parts.In the first part, the origin of the independent director mechanics is discussed and examined as the starting point. One hand, the theory of separation of ownership and management, agency cost, and second agency costs...