The Coordination And Perfection Of Supervisory Board System And Independent Director System In China’s Listed Companies

Basing on the “separation of the there powers” theory, the internal power in company is divided into three parts, that is, decision-making right, right of management and supervision right. What this paper focus on is that how do companies separate their power according to the internal supervisory system? The supervision mechanism is one of the most important elements that determine the level of corporate governance, and the economic development of a country or district is strongly influenced by the level of corporate governance. Therefore, if a company wants to improve its level of corporate governance, it should, first of all, perfect its supervision mechanism. According to the basic market situation in China, there is a long way to go. From the very beginning we learned the supervision mechanism from Germany and set the Supervisory Board as the only supervisory organization in company to 2001 we introduced the Independent Director system of the US, China keeps making efforts to strengthen the internal supervisory mechanism. However, through the decades’ practice, it can be found that neither the original German style nor the current US style can reach the effectiveness as we expect.This paper is aiming at improving the function and effectiveness of the Supervisory Board and the Independent Director system. The problem that both the two mechanisms must face is that how can they restrain the abuse of power among shareholders. How can a completely neutral independent director be involved into a company, which is dominated by majority shareholders? If this kind of independent directors cannot get into the company, the Independent Director system will only be a mechanism in name. Vise versa, if it is too harmony between the Supervisory Board and the Board of Directors, the supervisory function still cannot be performed well. Obviously, most of the members in the Supervisory Board and the board of directors consist of majority shareholders. The Supervisory Board will prefer to retain the harmony than points out the mistakes of the Board of Directors. In this case, the supervisory duty of the Supervisory Board can hardly play its role.Besides, for no matter the Supervisory Board or the Independent Directors, necessary information is the foundation of the performance of their supervisory duty. Without basic information resource, the Supervisory Board or the Independent Directors will become a form. Therefore, no matter the company introduces Independent Director system or not, China has to solve these problems.Regarding all the above mentioned theory, analyses and problems, this paper is specified as following four parts:To start with, the first chapter shortly introduces the reason why we should discuss this problem and what should be analyzed. The principal-agent relationship of modern undertakings may leads to moral hazard, so there need certain organizations to supervise the ‘agent’. The organizations are the Supervisory Board system and the Independent Director system. Although the two mechanisms are originally adopted by common law and civil law countries respectively, a convergent trend has emerged in several civil law countries.In the second part, two convergence modes in Japan and China are selected to be assessed. Japan adopts an optional type, in which each undertaking shall choose one of the two internal supervisory mechanisms. While China force every listed company to establish both supervisory board and independent directors. By comparing Japanese mode and Chinese mode with supervisory mechanisms in other countries, we could understand why they should transplant the Independent Director system and what problems will therefore bring forth.The third part starts from the “Foshan lighting” case, and then analyzes the problems in the internal supervision mechanism under the co-existence of the Supervisory Board system and the Independent Director system. The analysis can be divided into two parts: the general property right system and moral hazard; and the specific Supervisory Board system and the Independent Director system.The final part is aiming at putting forward some suggestions to the reconstruction of China’s internal supervisory mechanisms. It divides all the suggestions into three sections: the distribution of supervision right between supervisory board and independent directors, the improvement of the Independent Director system and the perfection of the Supervisory Board system. Each section provides constructive suggestions combining with China’s national conditions.In general, this dissertation extent Professor Reinier Kraakman and Henry Hansmann’s finding on the convergence of corporate governance. It reveals the convergent trend in internal supervision mechanisms, which are the Supervisory Board system and the Independent Director system, and analyses how these two supervision mechanisms operate in China from the aspect of history, system, economy and cultural. However, as two examples of the convergence, Japan and China are facing a lot of problems, for example, low adoption rate, unmatched legislation, different cultural tradition, etc. For specific analysis, the listed companies in China are picked out as objects. This paper, on the one hand, analyses the supervisory board system in Germany, the Independent Director system in the US and the alternative mode in Japan, then makes a comparison between Chinese co-existence of the Supervisory Board system and the Independent Director system and these modes in order to find problems of Chinese mode; on the other hand, takes the national conditions in China into consideration and tries to find applicable approaches to solve the problems.