News Release on Independent Directors

Currently China Securities Regulatory Commission released Directive Opinions on Establishing Independent Director System in Listed Companies, which brings the independent director system into standard orbit. This is a new action taken in the governance of listed companies in China, and an important means to improve the standard operation of listed companies.

Since 1960s, in some countries and regions independent director system has been regarded as one of the most important issues in the standardization and completion of corporate governance structure. Related reports from Organization of Economic Cooperation and Development (OECD) shows that in 1999 the percentage of independent directors in the board of directors of the world’s major enterprises has been high, among which the U.S. is 62%, Britain 34%, and France 29%. In those countries, independent directors are regarded as the important roles who stand on the company’s side to protect the interests of the company and to balance the management. Also the independent directors, participating in the operation of the board of directors, can duly discover the signal of risk in the operation of the company and make warnings against the company’s offensive or improper conducts.

In our country, system transformation of listed companies has not been thorough and the operation is not up to standard, the problem being particularly outstanding in terms of legal person governance structure. Common problems can be seen with the absence of owners, especially state-owned contributors, “Dominance by a single shareholder” resulted from insider control, and excessive related trades with controlling shareholders. Problems emerging from the early stages also have much to do with the incompleteness of its governance structure. In this regard, it appears to be more necessary and urgent to establish independent director system and complete the governance structure of listed companies.

OECD Principles of Corporate Governance points out that independent members of board of directors can make significant contributions to the decision-making of the board of directors and make objective assessment on the performance of the board and management. The independency of independent directors makes it particularly important in the corporate governance structure and plays a special role in the supervision over the operation and management of the company, balancing the power of the controlling shareholders and managers, and the protection of shareholders’ interests. In comparison with the internal directors, independent directors can stand on a more objective standpoint to assure the company’s observation of good rules of governance. Generally independent director system can help to improve the governance structure and the quality of the listed company, help in strengthening the professional operation of the company and improvement of the scientific decision-making, help to strengthen the restrictive mechanism of the board of directors and protect medium and small investors’ interests, and help to increase the clearness of the information disclosure of the company and urge the company to operate in a standard manner.

Although independent directors, as one of the important parts in corporate governance structure, are entrusted with considerable responsibilities, external conditions of all aspects to ensure independent directors’ performance of responsibilities need to be completed, and independent directors need to assure the improvement of their own level, self-principle and diligence, so that independent director system can effectively perform its functions. One of the measures for these issues is the first training course for independent directors of listed companies to be jointly held by CSRC and Tsinghua University in July this year. It is known that similar trainings shall be held regularly in future. The trainee shall not be restricted to the acting independent directors and will be extended to nominees of independent directors. Also, related government offices shall strengthen the management over independent directors and enhance the information disclosure in relation with the independent directors’ performance of duty so that independent directors will become a professional group to perform important functions in corporate governance.

The China Securities Regulatory Commission