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Independent director system and optimization of corporate governance structure

Author: WangYanLi ZuoXinFeng From: www.yourpaper.net Posted: 2009-11-14 20:10:08 Read:
Abstract: based on the introduction of independent directors and financial governance connotation, summed fruitful research results of the independent director system in the past, from the effects of the financial governance angle to optimize the corporate governance structure of the independent director system depth inquiry.
Keywords: independent directors; corporate governance; financial governance
In 1940, the United States enacted the Investment Company Act, first proposed the concept of "independent directors" and provides that "at least 40% of directors are independent as" independent directors to optimize the structure of corporate governance, supervision and constraint operators, an important force balance controlling shareholder. In 2001, the Securities Regulatory Commission issued guidance on the establishment of an independent director system in listed companies, marks the beginning of the introduction of the independent director system in China's listed companies mandatory. 2006, the revised provisions of Article 123 of the Company Law of the People's Republic of China, the listed company shall have independent directors, specific measures by the State Council. At this point, the status of the independent directors of listed companies was finally established in the form of a national law.
A connotation of the independent director system and financial governance
(A) the system of independent directors connotation
Independent directors, which is short for independent non-executive directors. Its two related concepts: First, the outside directors and Representative Director. Independent directors in the Anglo-American countries, also known as outside directors or non-executive directors are not company employees and has a fully independent board members will. The key is to determine the independent directors depending on the presence or absence of a direct or indirect interest with the company, it boils down to, is to see whether a director has "independence". Its independence is reflected in three aspects: First, independent of major shareholders; independent operators; Third, independent of the interests of the company's stakeholders. This special status and independence of the independent directors, inside directors play an oversight and checks and balances, and to improve the corporate governance structure, supervision and constraints of the company's decision-makers and operators, restricting the manipulation of large shareholders to maximize the protection of minority shareholders and even the interests of the entire company plays a key role. In our country, the independent directors means "represents directors, the directors appointed by the shareholders in the companies in which it invests. Clearly, the independent directors are basically from the major shareholders or subject to major shareholders, usually from their own on behalf of the interests of shareholders to consider the issue, the relationship of interest to some extent with the listed company, affected thus its independence and objectivity.
(B) Financial Governance connotation
The literature search revealed, although Western scholars aware of the company's financial and corporate governance has intrinsic correlation and dependency, but did not conduct in-depth research, has not been formally proposed financial governance areas, failed to build a complete theoretical system of financial governance, and thus its theoretical exploration is still in its infancy. Many domestic scholars from a different perspective on the meaning of the Financial Governance defined. Song Xian Zhong (2000) defined the relationship between owners and operators, financial governance structure is a set of specifications that owners and operators of the financial powers of financial responsibility and financial interests of institutional arrangements. Yang Shue (2002) from the stakeholders perspective, the company's financial governance through financial power between the different stakeholders of different configurations, adjust the position of stakeholders in the financial system, a series of dynamic system to improve the efficiency of corporate governance arrangements. " Lin, H (2003) that financial governance is a group of contacts Stakeholders formal and informal institutional arrangements and structure of the network of relationships, the fundamental purpose of this arrangement to achieve the rights, obligations and interests of stakeholders subject balanced to achieve efficiency and equity of reasonably unified. Wu Zhongxin (2005) that a formal corporate financial governance starting from the financial social properties (property rights, contractual relationship), as the main financial power flow logic clues to research how rational allocation of property rights within the company, to form a group of contacts on Stakeholders and informal institutional arrangements to achieve the fundamental purpose of safeguarding the interests of investors.
Second, the system of independent directors and the company's financial governance structure defects
(A) Independent Director System
1. "Independence" Security needs to be strengthened. The generator of our independent directors: board of directors, board of supervisors, individually or jointly listed companies held more than 1% of the issued shares of independent director candidates to shareholders, and shareholders' meeting election decision. In the case of widespread "due to the dominance of listed companies in China, recommended and approved by the independent directors serving essentially the largest shareholder control. The largest shareholder control of independent directors serving phenomenon will inevitably affect the independence of the independent directors exercised.
Qualifications of independent directors is not clear. Independent directors composed of three components by experts and scholars, intermediaries employees and experienced management staff. Experts and scholars to focus on reputation, independence and ethics, but lack the time and experience in business management, is difficult for enterprises to conduct in-depth understanding and effective supervision of the business managers. And in accordance with the provisions of the "up to five listed companies on the principle of independent directors serve as independent directors", some well-known professionals, who is also the independent director of several listed companies, resulting in contradiction of the listed companies independent director in the timing: it is necessary to take the time to complete their work, we have to spend enough time and effort to complete the duties of independent director of a listed company, it is the independent director has been generally questioned ability to fulfill its responsibilities.
3 independent directors positioning is not clear. Majority of independent directors exercise due to the lack of a clear understanding of their own responsibilities, are more cautious. The Board of Directors proposes the hiring or dismissal of Certified Public Accountants, the board of directors to convene an extraordinary shareholders' meeting, the company is an independent to employ external audit or advisory bodies listed company audit or investigation, collecting voting rights and other enterprises operating decisions open to shareholders before the Meeting , the majority of the independent directors are only to fulfill responsibilities signature in the resolution of the Board and related party transactions, so that the system of independent directors mere formality.
4 independent directors remuneration design specifications. Currently, the majority of our independent directors of listed companies remuneration is usually not linked to the performance of the company, only to receive a fixed amount of remuneration. Some enterprises is not high time value and risk liability assessment of independent directors remuneration to be less than its value, the incentives of independent directors and the risks do not match, its underpowered maintain occupational rational; give the remuneration too high, the independent directors based on interests, will compromise and Control, to make a judgment about the outcome, make independence lowering.
(B) the financial governance structure defects
Shareholding structure is irrational. In China, the listed companies exist non-circulating shares and flow of shares of equity split of the total share capital of state-owned listed companies, about 2/3 of the state-owned shares legal person shares can not be on the market circulation, only about 1/3 of the circulation of shares in market circulation and holders is quite fragmented. Split share the pattern of the two types of shareholders is difficult to reflect the provisions of the Companies Act, the same shares same rights. Controlling shareholder "dominance" can decide important matters of the company's operational decisions, personnel arrangements.
2. "Internal control" is serious. Ownership of the right to state-owned holding is not clear, the state-owned shares dummy, the owner is not in place the main problems of China's listed companies. From a the final retrospective view of the ownership of listed companies, the ownership of state-owned shares belong to the state, but the state as the owner can not directly exercise their ownership, some of the executives to take a de facto "internal control" phenomenon, while the use of government administrative "super control" shirk the responsibility of management to shift the risk. The Company's management is likely to focus only on the expansion of serving the consumer, maintaining stable positions to the detriment of the country and the interests of small shareholders. Audit constraints, fatigue, lack of information disclosure. CPA double principal - agent relationship exists in the audit of financial statements of listed companies in China, supposedly the majority of investors are the principals, the audit of the financial statements are an agent, but actually the power of appointment of the accounting firm rests in the hands of managers, the audited object into the audit client, appeared authorities themselves entrusted others to audit their own situation, the management of listed companies and accounting firms "bundled", the former became the latter's "bread and butter" even part of the CPA became a listed company of fraudulent helper, providing false information, misleading information users, making serious distortion of accounting information in the disclosure.
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