A Study On Independent Directors’s Civil Liability

At the beginning of this century, Independent Director System has been introduced to China from Anglo-American corporate governance. This system has been expected to play an important role in improving corporate governance in Chinese listed companies, especially in protecting minority shareholders’interests and enhancing the effectiveness of boards of directors. However, after years of practice, the effectiveness of this system is not so satisfying, that it hasn’t reached the original expectation of the introduction of this system. In China, the independent directors are always dubbed as the "vase director","favor directors" etc. There are many reasons leading to the current plight of the independent director system, through the author’s study, the main reason leading to today’s situation is the imperfection of the independent director responsibility system, especially some defects in our civil responsibility system. Nowadays in China, most academic studies on this topic focus only on the pros and cons of introducing this independent director system or on the rights and obligations of the independent director, while there are few studies focusing on the independent director responsibility system, especially civil responsibility system, which in the author’s point of view is one the main reasons causing the independent director system losing effect in China. In this context, the study on the civil liability of the independent directors could be of great significance.The set up of the independent director system was supposed to limit large shareholders of listed companies to over invade and occupy the interests of listed companies, protect the legitimate rights and interests of minority shareholders, and improve the effectiveness of boards of directors. While in reality, the effectiveness of the independent director system is far from the original expectations, so that the requirement to strengthen the independent director’s liability is increasingly calling by the market and the authorities. We should be rational in understanding the current dilemma of the independent director system, which cannot be simply relying on strengthening its legal obligations; we should also guarantee that the independent directors’ interests are well protected, so that the independent directors can have a relatively relaxed environment to procure its diligence and execute its responsibilities. This requires firstly straightening out the legal relationship between the independent directors and the listed company, coordinating the functions between independent directors, executive directors and supervisors. Secondly, we have to set up performance standards for the rights, duties and obligations of the independent directors, and establish an unobstructed accountability mechanism. Finally, we should pay attention to the Protection of independent directors’ interests, the conditions of the restrictions and exemptions of independent directors’civil liability should be clearly defined to build a reasonable safeguard mechanism.This thesis is divided into4sections. For the part of preface, there will be a brief introduction of the significance of this paper and the main current issues of independent directors’ civil liability, and then this section will briefly summarize the structure and the discussion subject of the paper.The first section, from the angle of jurisprudence, explains the theoretical basis of the system of civil responsibility of independent directors, and emphasis that to perfect the civil liability of independent directors is the inevitable requirement of the realization of legal justice value. At last, this section points out that to improve China’s civil liability system of independent directors has important theoretical and practical significance in our country.The second section, through the analysis of the legal status of independent directors of listing Corporation, points out the different legal relationships in the listed company between the independent directors and executive directors, and then this section conclude that this difference is the theory basis of distinction their different civil liability, and then the main difference between the independent directors and the executive directors is discussed. At the last of this section, the author outlines the independent director’s duty of loyalty and duty of care performance standard.The third section, combs our country’s current laws on the basis of the independent director’s civil responsibility, by listing relevant legal provisions on listed companies’shareholders’liabilities in China’s "company law" and "Securities Law". In this section, the author also analyzes the civil liability of independent directors. In the fourth section, the author indicates that, we should not only emphasis the civil liability of independent directors, but also should emphasize the protection of the legitimate rights and interests of independent directors. The author proposes that, in our country we should apply the director’s liability compensation system prudently, and develop the independent director liability insurance. At the same time, the legislation should define clearly the conditions of the restriction and exemption independent directors’ civil liability; In this section, the author also describes its opinions on the exemption of independent directors from civil liability in company’s articles and regulations.