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Apart from that, the supervisors’ professional qualification is another factor that affects the efficiency of supervision. A considerable proportion of supervisors do not have sound educational background. They lack of professional knowledge and skills which are essential to make independent and objective judgements on companies’ business.
Other than above, there exists overlapped provisions between the supervisory board system and independent director system. For example, Art 54(1) of the 2006 Company Law grants the board of supervisors the powers to check the financial affairs of the company. In the meantime, Art 5 of The Guiding Opinion addresses that the independent directors also have similar obligations. In this case, it gives rise to a chance for them to shuffle off their responsibilities by taking advantage of overlapped provisions. Just like the saying “ Everybody’s business is nobody’s business.” Therefore, it is indispensable to explicitly elaborate duties of each part in order to prevent their breach of duty.
Defects of Independent Director System
According to Art 1(1) of The Guiding Opinion, the term “Independent Director of a listed company ” means a director who does not hold any position in the company other than director and who has no relationship with the listed company engaging him or its principle shareholders that could hinder his making independent and objective judgements.” The definition reflects that independence is the most valuable characteristic of an independent director. With this characteristic the independent director is placed in a unique position to assume the supervision responsibility.
The importation of independent director system to China is in the hope of further perfecting the corporate governance structure of Chinese listed companies. However, in practice, independent director system in Chinese listed companies exposes its problems primarily as follows:
Pertaining to The Guideline Opinion, the nomination of independent directors, to a large extent, is manipulated by the controlling shareholders. [FN6] In addition, many of the independent directors are not willing to initiatively fulfill their duties. According to a relevant research report in 2004[FN7], 33.3% independent directors say that they never interpose their veto and they usually waive in the voting on a resolution of the board of directors; 35% independent directors say that they never express independent opinions that are divergent from opinions of big shareholders or senior management personnel in the listed company; Over 70% independent directors say that they never carry out, nor are going to exercise the powers in the future conferred by CSRS, including proposing to the board the convening of an extraordinary shareholders’ general meeting, proposing convening of a meeting of the board of directors, and independently engaging external auditing institutions and consultancies; 94.4% independent directors never intend to solicit shareholders’ voting rights before the holding of a shareholders’ general meeting. From the surprising statistics above, we may see that independent directors in Chinese listed companies acted like the vases of the company, serving a decorative purpose or no purpose at all. This abnormal phenomenon shows the failure of independent director system in China. Meanwhile, it attracts people’s attention to contemplating the problems faced in the current listed companies of China.
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