Vice President Zhou Qinye of the Shanghai Stock Exchange (SSE) said recently at the fifth training course for independent directors of listed companies that marked progress has been made since the founding of the system of independent directors 5 years ago. At present, every listed company has an average of 3.5 independent directors, who assume a positive role in reinforcing the governance of listed companies. Nevertheless, the current system still needs to be improved, for the independent directors' performance is based on the reputation mechanism, namely, protection of their self-reputation. Therefore, it is necessary to improve the system in terms of the incentive regulatory mechanism and the election and appointment system.
ccording to Zhou, three old ideas should be changed for a correct understanding of the independent directors' role in cooperate governance. Firstly, independent directors are not omnipotent for all problems in cooperate governance. Secondly, they should not be regarded as another kind of supervisors. Thirdly, they represent the interests of all shareholders, the small and medium shareholders alike.
Moreover, efforts should be made to better handle the relationship between the independent directors' independence and their knowledge of insider information in their work. To guarantee their independence, it is essential to improve the election and appointment mechanism. This includes establishment of a challenge system for controlling shareholders and a competition system, implementation of an accumulative voting system and a competitive election system as well as building of self-regulatory organizations. To solve the contradiction of independent directors' independence and their knowledge of insider information, special committees are to be set up with independent directors as chairmen and responsible for the directorate, or full-time independent directors upon examination are to be hired.
Zhou held that the independent directors needed to improve their abilities for a better performance. At present, independent directors are made up of experts, scholars, practitioners of intermediary institutions and experienced managers. It is suggested that there be more experienced managers. Besides, the incentive, regulatory, evaluation, accountability and other supporting mechanisms should be established.
