Amendment And Improvement Of The Economic Law Liability System Of Independent Directors In China

On November 12,2021,Guangzhou Intermediate People’s Court made the first instance judgment on the false statement case of Kangmei Pharmaceutical,which shook the A-share capital market and revealed the shortcomings of the liability system of the independent director economic law in China.In this case,the five independent directors were each awarded hundreds of millions of yuan of joint and several damages for their lack of diligence and responsibility,which triggered a wide discussion on the independent director system and set off a wave of "resignation" of independent directors.As an economic subject,independent directors have the subject nature of economic law,such as legal responsibility,supervisory responsibility,social responsibility and economic interests.From the perspective of economic law,in the Kangmei Pharmaceutical case,the independent directors violated the Company Law,the Securities Law,the Listed Company Governance Code formulated by China Securities Regulatory Commission in 2018,and other laws and regulations.As an independent director who supervised the company’s operation and management,they failed to be diligent and responsible,and failed to fully exercise their independent director review duties.If the company fails to detect and stop the illegal acts of the company in time,which leads to the loss of the company and the loss of investors’ interests,the company shall be investigated for civil compensation liability,which belongs to the responsibility category of economic law.From the perspective of market supervision by the state,although the independent directors do not have a direct impact on the company’s daily business activities,in this case,the independent directors were identified as "informed personnel" who made false statements due to gross negligence when performing their supervisory and regulatory duties.In order to maintain market order and social interests,the independent directors were judged to be liable for joint and several damages based on the filling principle.Therefore,it is reasonable to think that the civil liability of the independent director in this case is the liability of economic law.The Kangmei Pharmaceutical case reflects the following deficiencies in the liability system of independent directors under the economic law: First,the legislation does not provide special provisions for the legal liability of independent directors,leading to the legal risk that independent directors may bear the same punishment as executive directors.Secondly,in the current administrative punishment and civil compensation litigation against independent directors,the supervision department and the court usually apply the principle of "presumption of fault" to identify the responsibility of independent directors.In practice,the rigid imputation principle of "signature is responsibility" almost puts the burden of proof on independent directors.Third,current laws and regulations in our country due diligence to the independent director identification standard is imperfect.Fourthly,the limited exemption situation of independent directors makes independent directors face risks such as unequal rights and responsibilities under collective decision-making,insufficient supply of exemption mechanism,and the assumption of rights,which damages legal fairness and justice.The basic problem is that the access mechanism and exit mechanism of independent directors are not perfect,the access criteria of independent directors are not reasonable,the formal qualification examination results in the professional ability of independent directors is good and some are bad,and the performance ability is insufficient and some are not diligent and responsible.The regulations on the removal of independent directors when they withdraw improperly are not perfect,the procedures are not reasonable,the market is prohibited and the system of the "blacklist" of independent directors is not sound,which leads to the existence of illegal or inappropriate independent directors in the securities market.These problems reflect the independent director system of our country as an exotica.Since 2001,the Guidance Opinions on the Establishment of Independent Director System in Listed Companies issued by China Securities Regulatory Commission marks the development of independent director system since its establishment in our country for more than 20 years,but it is still not perfect.The Kangmei Pharmaceutical case has a positive significance in promoting the perfection of economic law liability system and promoting the diligence and responsibility of independent directors,but there is room for improvement in the proportion and amount of compensation liability.The legal liability system of independent directors in the United States is relatively perfect,and independent directors are rarely held accountable in reality.They mainly rely on reputation mechanism for incentive and restraint.Because of the major differences between national conditions and legal systems,our country should not copy the American experience.The key to the revision and development of the liability system of independent director economic law is to perfect the legal liability system.Firstly,we should establish and improve the access and exit mechanism and accountability evaluation mechanism of independent directors,and strengthen the supervision of the whole process of independent directors’ performance of their duties,so as to strengthen the system guarantee of responsibility capacity of independent directors under economic law.Secondly,improve the compensatory economic liability mechanism of independent directors.Clarify the standards for the duty of diligence of independent directors,support the internal recovery of independent directors,and fill the system vacancy that attaches importance to external liability investigation while neglects the internal recovery of responsible personnel.Finally,the punitive economic responsibility mechanism and economic reputation responsibility mechanism of independent directors should be perfected and developed to encourage the company to select excellent independent directors and let them play a role in improving the level of corporate governance.