Previously published as: Managerial Law
Online from: 2008
Subject Area: Business Ethics and Law
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|Title:||A brief analysis of the defects and countermeasures of the independent director system in China|
|Author(s):||Niu Yuan, (Law School, Shanghai University, Shanghai, People's Republic of China)|
|Citation:||Niu Yuan, (2009) "A brief analysis of the defects and countermeasures of the independent director system in China", International Journal of Law and Management, Vol. 51 Iss: 4, pp.260 - 267|
|Keywords:||China, Corporate governance, Directors, Incentive schemes|
|Article type:||Research paper|
|DOI:||10.1108/17542430910974086 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
|Acknowledgements:||This paper is the periodic achievement of project “Research on Finance Law and Cultivation of Talents under the Background of Financial Reform and Innovation” by Shanghai Municipal Education Commission.|
Purpose – China adopted an independent director system in 1997 in order to perfect company management structure in the country. The purpose of this paper is to assess the effectiveness of that system.
Design/methodology/approach – This paper starts from the current status of the independent director system in the country and gives comments on the independent nature and designation procedure of the independent directors, rationalization of the incentive system and completion of responsibility mechanism.
Findings – The unique function of the independent director system plays a decisive role in preventing control by people within a public company, minimizing power abuse by shareholders and best maintaining the interests of medium and small shareholders. But there still exists certain shortcomings in independent director system in China such as unclear of the independence nature, irrationality of designation method, incomplete incentive system and short of relative responsibility mechanism which restrict independent director system to be brought into full play.
Originality/value – Management of a company is always a hot topic in the company law and an independent director system is a very important aspect. On the basis of learning from advanced experience from the western world, China imported the independent director system to improve the management system of its companies. This paper analyses defects of the current independent director system in China and puts forward improvement measures.
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