Research On The Effectiveness Of Independent Director System

In China, the most important problem to be solved in introducing the independent director system is to reasonably position its functions and missions.

We can not expect independent directors to do too much work. Their limited time and energy also determine that they can not do too much for the company or shareholders.

We should be practical and make sure that the task of independent directors is a little less clear. Perhaps they may play some real role.

(1) the effectiveness of the existing functional positioning of the independent directors is difficult to play. The guiding opinions on establishing an independent director system in the listed companies (hereinafter referred to as the Guiding Opinions) are clearly defined in the first second paragraphs: the independent directors are responsible for the integrity and diligence of the listed companies and all shareholders.

Independent directors should conscientiously perform their duties and safeguard the overall interests of the company in accordance with relevant laws and regulations, the guiding opinions and requirements of the articles of association, especially the legitimate rights and interests of small and medium-sized shareholders.

Independent directors should perform their duties independently and are not affected by the major shareholders of listed companies, the actual controllers, or other units or individuals who are interested in the listed companies.

We can see that in the guiding opinion, the orientation of independent directors is biased towards protecting the interests of minority shareholders.

There are many prerequisites for independent directors to play the role of this functional positioning. However, there are still many obstacles to these prerequisites in our country, so that the effectiveness of independent directors can not be guaranteed very well.

1, the stock ownership of listed companies is relatively concentrated, and the state-owned shares are single and big. The equity of Listed Companies in China is relatively concentrated. Most of the listed companies have absolute shareholding.

This is one of the reasons for the introduction of independent directors, but at the same time, it has become one of the obstacles to the role of independent directors.

In most of the listed companies, the board of directors and managers are basically controlled by large shareholders. In fact, the controlling shareholders are "one person has the final say", rather than the independent directors who have no shares, that is, two shareholders and three shareholders who have a considerable number of shares have little say.

In this way, the shareholders' meeting restricts the corporate governance system which is restricted by the board of directors and the board of directors.

The board of directors, the board of supervisors and the shareholders' meetings are all nominal, so that a few experts and scholars can supervise and restrict the large shareholders. Is that possible?

Therefore, some scholars believe that insider control in China's listed companies is "insider control" in the pition, which is essentially different from the internal control in the Anglo American countries, and the solution and means should be different.

The solution to the problem of insider control is mainly to create new "outsiders" through the property rights system, which is not much related to the introduction of independent director system.

2, the nomination procedure is not perfect, and the independent director is not strong enough. According to the survey conducted by the Board Secretariat Association of Shanghai and the Jinxin Securities Research Institute, a survey of 69 listed companies shows that nearly 90% of the independent directors of the survey are nominated by the majority shareholders or top management. Among them, 55% of the independent directors are recommended by the majority shareholders to the shareholders' meeting, and 27% are recommended by senior management personnel, and few independent directors are recommended by other shareholders.

Generally speaking, the management of listed companies is basically controlled by large shareholders. Therefore, the nomination of independent directors is basically dominated by large shareholders.

According to the survey results, the independence of independent directors is not strong, mainly due to the nomination procedure of independent directors.

In the nomination of independent directors, the fourth paragraph 1 of the guiding opinions stipulates that the board of directors, the board of supervisors of a listed company, a shareholder who has more than 1% of the issued shares of a listed company alone or in a merger may submit an independent director candidate and shall be elected by the general meeting of shareholders.

The shareholders who hold more than 1% stake are excluded from the minority shareholders, because more than 1% of the stockholders of many companies are not middle and small shareholders.

Take ST Nanhua as an example, the shareholding ratio of its third largest shareholders is 1.82%, and the fourth largest shareholder is 0.91%.

Such a regulation actually restricts the independence of independent directors in the group of medium and large shareholders with low liquidity.

Once the independent director violates the will of the Nominee (large shareholder), he will soon lose the qualification of an independent director.

Since the introduction of independent directors in China is mainly aimed at supervising the behavior of controlling shareholders and their agents, the independent directors should not choose or decide the candidates of independent directors by the controlling shareholders or the board of directors they control, otherwise the work of the independent directors will be greatly reduced.

3, half of the listed companies do not set up special committees, and independent directors perform platforms lacking support. In terms of special committees, the fourth paragraph of the fifth guiding principles provides that if a board of directors of a listed company has remuneration, audit, nominations and other committees, a sole director shall have more than 1/2 of the committee members.

Of the listed companies, 49.3% of the listed companies did not set up four meetings, while 18.84% of the four special committees were established. The other 30% listed companies set up 1~3 special committees according to their needs.

It can be seen that most of the board of directors of Listed Companies in China lack the Specialized Committee set up, which leads to vague positioning of independent directors and no specific tasks.

4, information asymmetry affects supervision function. The important purpose of independent directors in corporate governance is to exercise supervisory function. However, because independent directors are not employed in the company, the supervision of independent directors is mainly based on relevant information provided by the company.

Some international organizations and regulatory bodies all emphasize the importance of obtaining information for independent directors to perform their functions.

However, in practice, executive directors seldom encourage independent directors to establish direct links with company management, and the information available to independent directors is relatively limited.

Moreover, the two kinds of behaviors of management will affect the judgment of independent directors: one kind of behavior may be incomplete or distorted information disclosure, especially the purpose of misleading, distorting, concealing and confusing; another kind of behavior may be the non deceptive information misleading or incomplete information provision, which makes the independent director's true independent judgment face the great threat of distorting the truth.

According to the position of independent directors, the duties of independent directors and the board of supervisors overlap, mainly in checking the company's finance, supervising the director, the executive of the executive, whether it violates the laws, regulations or the articles of association, and to correct the behavior of the directors and managers to harm the interests of the company.

It is precisely because of overlapping and unclear regulatory functions. In practice, independent directors and board of supervisors do not have any specific system to check the company's finance, supervise directors and managers' behavior to ensure the supervision.

From the above analysis, we can see that there are many obstacles to the effectiveness of the independent director's function orientation in China, and these obstacles need to be solved for a long time. If we stick to this position, we will bring a heavy psychological burden to the independent directors, which will frustrate the expectations of the small shareholders, and will also cause everyone to doubt the role of the independent directors.

This is not conducive to the development of independent directors.

Therefore, after considering the objective situation of our country, it is suggested that the function of independent directors should be added to a strategic decision making function at this stage.

Two, independent directors' strategic decision making function positioning: (1) theoretical analysis of positioning; 1. Knowledge of independent directors enriches the vision of decision making. In knowledge economy society, business decisions require more and more knowledge and demand for knowledge.

Enterprise decision making requires not only knowledge related to products produced by enterprises, but also market knowledge and financial knowledge, which requires knowledge of macroeconomic and policy aspects.

In addition to the full-time directors who have business operators and participation in business activities, hiring outside experts to participate in the board of directors can bring information, thinking and creativity that are hard to get inside the enterprise.

Independent directors rely on their unique expertise and skills to play their expertise in the board of directors, improve the decision-making level of the board of directors, avoid mistakes in decision-making, and make suggestions and suggestions for the long-term development strategy of the company.

This is mainly manifested in: (1) bringing new information, new ideas and new skills to the company; (2) helping companies to have wider access to other industries, financial markets, government and news media; (3) providing objective and rational views on the company's plans and performance evaluation; (4) helping managers identify opportunities, anticipate potential problems, and formulate appropriate development strategies.

2, President Life Cycle Theory and the need for independent directors to participate in decision-making.

Breck (Han Brick) and Falk Toma (Fukutomi) put forward a theory of president's life cycle, and put forward a relatively complete hypothesis of the five stage of president's life cycle for the change rule of leadership during his presidency.

According to this model, the management life of the president can be divided into five seasons: (1) being appointed to take office; (2) exploring reform; (3) forming a style; (4) strengthening in an all-round way; (5) being rigid and obstructing.

In this five stage model, there are five factors that cause the performance of the CEO to start rising, then flat, and finally drop. There are probably five factors, namely, cognitive mode, job knowledge, information source quality, interest and power in office.

Among them, the most important thing is "rigidity of cognitive mode" and "width and quality of information sources".

Integrating these factors, due to the decline in interest in studying and learning, the decline in information quality and the superstition of their own cognitive patterns have led to the rigidity of the president's thinking mode. With the vested interests, the positive role of the advanced thinking and skill set represented by the CEO has been developing in the opposite direction. The original innovator may turn into an opposition to the new round of reform, and the performance of the enterprise will then decrease.

In this way, independent directors with different knowledge backgrounds will be of great significance to the specialized operation and optimization of strategic decisions of the company. They can bring different ways of thinking and a lot of useful experience for the company.

According to the structure of independent directors in China, by the end of June 30, 2002, among the independent directors who were in office, professors, technical experts and other scholars accounted for 55%, accounting staff, lawyers, investment advisers and other intermediary agencies accounted for 30%, accounting for 10% of enterprise management personnel, including 5% of the other retirees, including government agencies, accounting for 5%.

(Note: the data comes from the regulatory department of the China Securities Regulatory Commission listed company, "the summary and improvement suggestions on the establishment of an independent director system for listed companies", July 19, 2002).

Moreover, from the perspective of supply and demand of independent director candidates, it is difficult to find enough candidates in addition to experts and scholars in a short time.

The pattern of the majority of independent directors by experts and scholars indicates that the strategic decision is the function of independent directors, and its effectiveness can be guaranteed in personnel.

And from a practical point of view, independent directors are quite acceptable and agree with their strategic decision-making functions.

A survey of this problem found that 2% of the independent directors regarded themselves as vases, and 39% of the independent directors implicitly pointed out that they were consultants. 37% thought they were directors and 21% thought they were representatives of minority shareholders.

(Note: information of the board secretarial Association of Shanghai listed companies and Jinxin Securities Research Institute).

Based on the above analysis, this paper attempts to illustrate that at this stage, the functional orientation of our independent directors should not be limited to the supervision and checks and balances and the protection of minority shareholders' interests. We should also play the role of independent directors in strategic decision-making.

Even so, when the independent directors play the role of strategic decision-making, there are also shortcomings such as the limited time spent on the listed companies, the unequal responsibilities and rights, the credibility of the independent directors and the failure to establish the social evaluation system.

Three, to ensure the effectiveness of the independent director's function, we should improve the selection mechanism of independent directors. 1, through the China Securities Regulatory Commission and its dispatched offices in various parts of the country, we will recommend the listed companies to the listed companies according to their talent resources, especially for those important listed companies that are related to the national economy and the people's livelihood.

2, commissioned by the regulatory agency with a certain qualification of talent intermediary agencies, the qualification of trained candidates, establish independent director talent pool.

When a listed company is in need, a number of candidates are recommended by intermediaries for their choice.

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