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Remuneration is an important source of incentive and stimulus to corporate staffs. A good independent directors’ remuneration system plays an irreplaceable role to stimulate independent directors’ devotion to duty. The Guiding Opinion points out that, “listed companies should provide an appropriate allowance to their independent directors. The proposed rate for such allowance should be formulated by the board of directors, deliberated and adopted by the shareholders’ general meeting and disclosed in the company’s annual report.” [FN8]As is mentioned above, currently most listed companies in China are state-owned enterprises (SOEs). Their huge shares are in an overwhelming majority of the company’ shares so-called “yi gu du da”. Big shareholders substantially manipulate almost all business of the company. The phenomenon is typically named “internal person control”(nei bu ren kong zhi). Therefore, this young imported system unfortunately shares the same fate as the supervisory system: No real independence. They lack of motivation to supervise effectively because of considering their self-interests. Even worse, they would even develop well-connected relationship with other members of the directors’ board in order to build up personal network which is highly valued in a Confucian society to maintain their decent positions . [FN9]
Vague duties of independent directors reflect the current legislative problems. Article 1(2) of The Guideline Opinions stipulates that “An independent director has a fiduciary obligation and an obligation of diligence towards the listed company and all its shareholders.” This provision may leave courts and judges with uncertainty in deciding such cases in practice. A high-profile case of Zheng baiwen listed company stirred up a considerable of controversies on independent directors’ duties in China. In this case, the independent director was punished with a huge fine of 600,000 RMB, who was the first independent director charged with breach of duty in history of Chinese securities market. [FN10] To our surprise, this independent director stated that he was more than fiduciary and diligent during his term of office because he executed official duties without any allowance from the company, not only that, he even worked at his own charges. After the Zheng baiwen case, a number of other independent directors resigned from their companies, due to losing confidence in their jobs. The problem encountered is: the law does not spell out the constituted elements of fiduciary and diligent duties to articulate the obligations imposed on the independent directors. Given that China is not a case-based judicial system. Judges call for precise laws and regulations to decide a case rather than precedence applied previously as references. Uncertain obligation of independent directors causes independent directors may not be aware of their duties to the company. It certainly erects a barrier on the way to successful independent director system in China.
Suggestions on Perfection and Coordination of the Dual Supervisory Systems
In reality, no system is perfectly established without flaws, nor is it completely fit for a society. There is no exception with supervisory board system and independent director system in Chinese listed companies. Dual supervisory mechanism in China is still very young, moreover, it is a brandnew supervision structure that no model in other countries could be followed. However, it is possible to overcome the two systems’ discrepancies, and it is believed that they may live in harmony within Chinese corporate governance. For the time being, as both the supervisory board and independent directors have an important role to serve and yet they are failing, it is natural to explore some feasible channels to reach the success of corporate governance in China as the way forward. The writer strives to put forward some suggestions hoping of some help to future legislation. Firstly the writer will provide brief suggestions on each system respectively, then analyze the coordination of the two system.
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