A brief analysis of the defects and countermeasures of the independent director system in China

Abstract

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.

Citation

Yuan, N. (2009), "A brief analysis of the defects and countermeasures of the independent director system in China", International Journal of Law and Management, Vol. 51 No. 4, pp. 260-267. https://doi.org/10.1108/17542430910974086