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China Reforms Independent Director System of Listed Companies

Mon, 19 Jun 2023
Categories: China Legal Trends

On 14 Apr. 2023, the General Office of China’s State Council issued the “Opinions on the Reform of Independent Director System of Listed Companies” (hereinafter the “Opinions”, 关于上市公司独立董事制度改革的意见).

In China, more often than not, the independent director of a listed company is not independent from the management of the company, or lacks the professional ability to perform the director’s duties, or lacks the power to effectively supervise the company.

Consequently, independent directors in China are unable to play their proper supervisory role. That’s why Chinese investors often have doubts about independent directors.

Therefore, the Chinese government released the aforementioned Opinions to change the status quo on independent directors.

Highlights of the Opinions are summarized below:

  • The board of directors of a listed company shall establish an audit committee whose members are all non-executive directors and in which independent directors are the majority;
  • An independent director shall not have any interest in the listed company or any of its principal shareholders and actual controllers;
  • A periodic independence testing and disclosure mechanism shall be established to ensure that independent directors continue to perform their duties independently;
  • Persons with extensive industrial experience, experience in business operations and management, expertise in financial accounting, finance, law and other fields, and high reputation in the fields in which they are engaged are encouraged to serve as independent directors.

 

 

Cover Photo by vigor poodo on Unsplash

Contributors: CJO Staff Contributors Team

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