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Thinking about the independence of the independent directors in China Weakening

Author: JiangYouHong ZhangQingChang From: www.yourpaper.net Posted: 2010-04-07 15:54:01 Read:
[Abstract] independence is an important feature of the independent directors, and the strength of the independence of the independent directors can play a role in the key. China since the introduction of the independent director system, there has been the weakening of independent director independence. This paper attempts to defining and strengthening the independence of the independent directors of classification, and to explore the reasons for the weakening of the independence of the independent directors in China, in order to facilitate the independent director system in China to further improve.
[Keywords] independent directors; independence; classification; reason

First, the independence of the independent directors of the definition and classification of

(A) independence defined
Independent directors is in the West outside directors or non-executive directors. So-called independent directors, independent shareholders of the Company and is not working within the company, no important business contacts or professional contact with the company or the company's management and directors of the company and things can make independent judgments. China's Securities Regulatory Commission in 2001 released "guidance" on the establishment of an independent director system in listed companies (hereinafter referred to as "guidance") independent director is defined as "not in the company as duties other than as a director, and he is employed may impede the independent and objective judgment of the directors of the listed company and its major shareholders do not exist. " The independence of the independent directors can be seen by the "guidance" includes two aspects, namely the separate identity and independent judgment. Independent identity In addition to serving as a director of the Company, can not have other duties; independent judgment of independent directors with independent judgment. Can be said that these two aspects are interrelated and mutually reinforcing. No independent identity, even if the independent directors with independent judgment is impossible to be objective and independent judgment Similarly, if only independent identity and no capacity for independent judgment and business knowledge, it can not be truly independent. This shows that these two aspects are indispensable. The independence of the independent directors also be demonstrated in these two areas.
(B) the independence of the weakening Category
Form of independence weakening and substance of independence weakening. Weakened form of independence refers to the appointment of independent directors of listed companies to hire conditions can not meet the provisions of the relevant laws and regulations, does not have the independence of the relevant laws and regulations. That can not meet the formal requirements of the independent directors. This shows that the independent directors does not exist in the form of independence weakening. The real independence weakening means employed by the independent directors meet form of independence, but is not able to be truly objective and independent judgment. Employed in the country's independent directors are certainly able to achieve formal independence, mandatory, because these are legal violation then the enterprise will be unfavorable. The real reason for the lack of independence of our independent directors from the lack of real independence. Some of the provisions of the law itself is hollow and broad, while the independent director system in China is not mature, the legal system is not perfect, so some companies will take advantage of these "loopholes" skirted the law, led to a number of listed companies to hire independent directors lack real independence, the weakening real independence.
Professional independence weakening and moral independence weakening. The professional independence weakening is leading can not be independent judgment in the face of certain acts, or by their ability and professional quality enough and the lack of independence of the professional competence of the independent directors is not enough; such as some of the independent directors in the part-time independent director of several listed companies, but as an independent director of companies from different industry itself is not all industries understand, and thus can not appear to be completely independent the case of the determination, leading to the independence of weakening. Weakening moral independence is independence from factors other than the independent directors of their own ability and professional quality weakening, the weakening of this independence is the professional independence weakening the supplement, mainly related to some outside professional competence and moral factors, so here The imputation for moral independence weakening. Can be understood as an independent director with appropriate professional competence, but making this judgment, does not do full independence.

Second, the reasons for the weakening of the independence of the independent directors in China

(A) of the listed companies on the establishment of the independent director system awareness weak
Weak awareness referred to here is not that listed companies are not set up an independent director system, but rather refers to the fundamental purpose and significance of the listed companies for the establishment of an independent director system and not identify. There are many listed companies in the establishment of the independent director system just to meet the requirements of the relevant laws and regulations. Such as "guidance" provisions of the June 30, 2002, the members of the board of directors should include at least two independent directors; June 30, 2003, members of the board of directors of listed companies should include at least one-third independent directors. It is precisely because there is such a class of provisions, resulting in a number of listed companies to hire a certain number of independent directors just to cater to the relevant provisions of, and does not understand the fundamental purpose of the establishment of the independent director system. This will inevitably lead to the company in order for such motives to employ the poor quality of the independent directors, at the same time greatly reduced due to China's independent directors are part-time, these are bound to make the independence of the independent directors.
(B) the appointment and removal mechanism of independent directors unreasonable
The appointment and removal mechanism of independent directors in China will bring about the weakening of the independence of the independent directors. The guidance provides that the board of directors of listed companies, the Board of Supervisors, individually or jointly held by the listed company issued more than 1% of the shares of the shareholders can propose candidates for independent directors, and the shareholders' meeting election decision. Therefore, the independent directors nominated by the Board of Directors of the Company, and ultimately decided by the general meeting of the election. Such large shareholders will play a leading role in the independent directors optional, the role of the independent director system also exists in name only. Through this mechanism, the appointment of independent directors, their independence is questionable management in order to achieve effective supervision and protection of the interests of small shareholders is also very difficult.
(C) independent directors remuneration system is unreasonable
The same with the other members of the company, the independent directors also need incentives. Two, that is, material incentives and mental stimulation incentive. Inspired by the spirit of independent directors are part-time, so the role is not obvious. In contrast, the material incentives of independent directors will be more effective. The pay is a material incentive pay system is reasonable will definitely affect the independence of the independent directors. The guidance stipulates that listed companies should be given the appropriate allowance of independent directors. The standard allowance shall develop a plan by the Board of Directors, the General Meeting of Shareholders, to be disclosed in the company's annual report. This shows that the remuneration of the independent directors is subject to the impact of the company's largest shareholder, the remuneration of independent directors can not be independent of the company's largest shareholder. Independent directors can not be independent, economically bound to affect their independent judgment. (D) a person to serve as an independent director in a number of listed companies
The guidance provides up in five listed companies on the principle of independent directors to serve as independent directors. Shows that an independent director can be part-time in a number of enterprises of independent directors, which would definitely affect the time and effort spent by the independent directors of each listed company, did not spend enough time, the independent directors of various listed companies specific business and operations will not be able to do a full understanding of this will directly affect the independent directors can not be objective and independent judgment on the specific decisions and operations, resulting in the independence of Weakening. The same time, part-time in the number of listed companies, independent directors, time once a long time, it will produce a number of social relations, which have some association between listed companies may make, which is not conducive to the independent directors' independent judgment. On the other hand, as a result of our independent directors are part-time, they can not all industries have done completely understand and are familiar with, which may make the information asymmetry between the independent directors of listed companies, which are bound to affect independent director's independent judgment.
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