The Conception Of Independent Directors System In Solely State-Owned Company

The system of independent directors is an innovative reform for corporate governance structure. With its first appearance at the beginning of the 20th century in the USA, this system was established primarily to prevent legal damage caused by "insider control", protect minor shareholder's interest, and boost scientific management strategies through effective supervision on the part of corporation mangers. The system of independent directors was first introduced into China in 1997 by means of law transplantation. Guidelines on Establishment of Independent Director System of Listed Company enacted by the Security Supervisory Commission in 2001 marked its status of a mandatory regulation that listed companies in China must adopt. Ten years since the establishment of the Independent Director System have witnessed the broad application in the supervision and governance structures and gradual improvement and development of this system in listed companies in China. The system was formally stipulated in the amendment to Company Law in 2006, which marked the legal recognition of the system.Meanwhile, China's solely state-owned company have entered the phase of rapid development in an open market as the core force of national economy since the beginning of the 20th century. With the aim of promoting corporate management efficiency, and improving state-owned companies'governance structure, Assets Supervision & Administration Commission used for reference Singapore's Temasek Holdings'experience and began to introduce the system of outside directors in 2004, and conducted step by step the trial for the board of directors reform, setting up the system of outside directors in 17 central government-owned companies and gaining a considerable amount of experience and success in practice. Some local governments also staged related policies to introduce the system into their solely state-owned companies. However, the system of outside directors currently implemented in China's solely state-owned companies, with a different name, is still, in effect, a transplantation of the system of independent directors with Chinese characteristics, judging from the practical purpose and related regulations of its establishment. As a result, this system was not able to completely fulfill the function of perfecting the governance structure because the system's function and efficiency were undermined in the implementation by a lack of specific related concepts and regulations, a lack of strong requirements for independence and the imperfect system installation. The author of this article argues that the establishment of a specific and sound system of independent directors will achieve the purposes of reducing the possibility of "insider control" and improving corporate management and governance abilities.The first part of the article is a general introduction and overview about the concepts, origin, and characteristics of the system of independent director and about the purpose and function of the establishment of the system. A brief description is also given about how this system has developed since its birth in developed countries.In the second part, an analysis is conducted about the system of independent directors in China. The analysis begins by briefly describing the social and economic backgrounds for the introduction of this system, and the process in which the system was established and proceeded to analyze the defects in the system established in China's listed companies.The third part focuses on the analysis of necessity of establishing the system of independent directors in China's solely state-owned companies. The author discusses the defects in the process of legislation and application of the current system of outside directors in China's solely state-owned companies and analyzes the necessity of establishing a genuine system of independent directors in such companies, arguing that the purpose of the board of directors reform can only be fulfilled with the establishment of such a system.The fourth part is the author's initial conception of constructing a system of independent directors in solely state-owned companies from different perspectives, including the scope of application, election system, salary system, responsibilities and obligation, supervision system, etc. The idea is based on the author's understanding of related regulations of the system of independent directors in different countries and the characteristics of the country and of China's solely state-owned companies。...