1、 Analysis of the Shortcomings and Improvement of the Independent Director System in China HUANG Yede1 ， LI Jin91， WANG Jun2 1 School of Management， Shandong University of Technology,China， 255049 2 Zibo Institute of Measurement and Testing， China， 255033 yede-9505163 tom Abstract： As most of the lis
2、ted companies in China are restructured from stateowned enterprises，many defects exist in their corporate governance structure Independent director system in our country is a new thing and it still need to be further improved beth in theory and practice。 so the research on it has a profound signific
3、ance 111is paper applies the agency cost theory and stakeholder theory to analyzing the problems of independent director system in China such as unreasonable independent directors selection mechanism independent director is dependent in the economic interests。 the right-toknow of the independent dir
4、ectors is limited and ere In order to resolve these shortcomings we need to do the following things： establish a rational mechanism for the remuneration paid to independent directors， establish all incentive mechanism of sound reputation of independent director,and ensure the independent directors a
5、cquire sufficient information and so on Keywords： Independent Director System， Problems， Countermeasures 1 The Introduction of Independent Director System The independent director system was first created in the United States In the early 20th century,as the companys top management and principal sha
6、reholders of the company occupy key positions tot a long time, control of the company has been more and more concentrated and the company was manipulated by a small number of internal staff (that is， the person who has a major interests with the shareholders.the companys management or the company) T
7、he function of the board of directors has been weakened slowly 1eading to damage the interests of small and medium shareholders and the company In view of this situation the United States proposed the problem of”govern the companys corporate structure”and leads into the concept of outside directors
8、in order to through the participation of the companys external to balance the power of the internal staffs thus changing the Board of Directors”degenerate” situation.Since the 1950s western countries continue to confront the emergence of principal and small shareholders principal shareholders agains
9、t the interests of shareholders， as well as shareholders against the interests of other stakeholders Thus， the United States。 Britain and other Western countries have learned from its mistakes and begun the gradual introduction and implementation of independent director system From the 1 980s the in
10、troduction of independent director system in the directors of the company structure has been widely followed in the United Kingdom and France and showed a strong development momentum In the first several years when the security market standardized course in our country,the independent directors syst
11、em of listed company was not listed in the agenda the policy-making level of listed cornp8ny has not realized the importance of the independent director Because it has not formed the macroclimate the independent directors role in these companies is very limited With the development of security marke
12、t， improving corporate governance structure and listed companys quality became more and more cared by regulators experts， scholars and investors Thus our country began to introduce the system of independent directors In December l 997 the SFC introduced independent directors in the form of optional
13、provisions in the”Articles of Association guidelines listed”for the first time which is ”the company may establish the independent directors in accordance with the need ”Since 200 l， the China Securities Regulatory Commission issued a series of guiding opinions on the establishment of an independent
14、 director system by listed companies， hoping that through the establishment of the independent director system to improve the governance structure of listed companies 121 In August 200l China Securities Regulatory Commission released”establishment of independent directors by listed companies guiding
15、 opinion”。 it required the listed companies to introduce independent directors who do not hold any position in the companies into the board of directors hoping that can expect the effective implementation of the business objectively and impartially In 0ctober 2005， the revised draft of ”Company Laww
16、as approved by the tenth Standing Committee of the National Peoples Congress This draft stipulates： The listed company can set up independent director and the concrete way is stipulated by the securities supervision and administration organization of the State Council This indicates that development
17、 of independent directors system in China has realistic 1egal bases 2 The Theoretical Research of the Independent Director System The most important feature of independent directors is independence Independent directors do not represent the interests of a part of the shareholders but on behalf of an
18、 shareholders and the companys overall interests Independent director system is one of the important means of internal governance It is necessary to resolve the problems existed in the current system of independent directors of our country。 so we must understand the system mechanism of independent d
19、irector system The theory of Independent directors mainly comes from： 2 1 Agency cost theory As a result of the separation between the ownership and management in the Modem companies， a complex set of principalagent relationship has been existed The most important one is the principal agent relation
20、ship between managers and shareholders ， principal and small shareholders In order to reduce agency costs.it is necessary to improve the efficiency of management but also the need to prevent the issue of internal control， so it is necessary to change the operator of the structure of decision-making
21、powers through the creation of independent director system 2 2 Stakeholder theory Based on stakeholder theory,the nature of company is all organization formatted through the provision of elements of the right to use by the stakeholders to carry out investment cooperation The key to run normally is c
22、oordination of the interest conflict between the stakeholders， protection of the rights and investment get a reasonable return We can construct the fuzzy relationship map between the stakeholders as shown in figure 1 Such is the relation In the process of performing the contract the spokesman of the
23、 major shareholder,the manager exercises the residual control rights of the non-human assets and human assets which are transformed from the human and non human capital provided by the investors who participate in the contract by their own virtue In addition managers have dominance in information af
24、ter signing a contract Moral hazard is easy to happen which is prone to make benefit for the managers and damage the lawful rights and interests of small shareholders and other stakeholders who are in a weak position therefore the stakeholders must carry out effective supervision of the residual rig
25、hts of control that the manager have As for the small shareholders and other stakeholders they have different motivations and contracting requirements in an enterprise lease structure and they are different in many aspects such as quality,management ability,risk preferences So it is difficult to tak
26、e unity collective action Moreover the majority of stakeholders may lack the expertise coupled with the monitoring cost is assumed by themselves and the resulting from it is shared with other stakeholders Therefore， none of the interestsstakeholders have motion to monitor managers ， and they want ot
27、her people to monitor manager while they adopt”free rider”behavior Clearly,it is a high transaction cost and lack of efficiency by the small shareholders and other stakeholders take direct incentives and supervision of the manager To this end， in the system。 this issue may be relevant to introduce i
28、ndependent directors with expertise to represent small shareholders and other stakeholders to motivate and supervise the managers effectively 3 Problems Existed In the Independent Director System in China In China， the independent director system has serious problems.from Zheng Baiwen who punishment
29、 against sued the Securities and Futures Commission of independent directors to Independent directors of ”Le Shan Electric Power“were hampered on asking hire an intermediary to carry Out investigations and Erie milk”had been a incident that an independent director was dismissed, but the companyS adm
30、inistering authority： Since the independent director system was introduced into China a series of independent director cases triggered by the financial scandals of listed companiesexpositing At the same time from the Erie shares and Leshan Electric Power,to Kelon Electrical which was attacked by Yan
31、 Yiming it is no choice but to see that even the independence of independent directors is to rely on personal “conscience”instead of an effective institutional arrangements to be protected Therefore it is necessary for US to conduct indepth reflection on the system of independent directors 3 1 Unrea
32、sonable independent directors selection mechanism The generation mechanism of independent directors is a precondition to ensure its independence and play an effective role According to the”Company Law”。 the election， nomination and replacement of independent directors will be decided by the sharehol
33、dersgeneral meeting Under the Commissions “guidance， ”a listed companyS board of directors supervisory board and shareholders who individually or together hold not less than l of shares in the listed company may nominate candidates for Independent Director Such directors will be decided through election by the shareholdersgeneral meeting At present our country,the selection decision on the
