Varieties of Independent Directors in Asia: A Taxonomy
This working paper will be published as a chapter in “Independent Directors in Asia: A Historical, Contextual, and Comparative Approach”, Dan W. Puchniak, Harald Baum and Luke Nottage (Eds.) (Cambridge University Press, 2017, Forthcoming).
NUS - Centre for Asian Legal Studies Working Paper 17/01
NUS - Centre for Law & Business Working Paper 17/01
32 Pages Posted: 10 Mar 2017 Last revised: 7 Sep 2017
Date Written: August 1, 2017
This working paper chronicles the meteoric rise of the independent director in Asia. It reveals a reality which is the opposite of what conventional wisdom suggests: many of Asia’s leading economies have surpassed those in the West in terms of the proportion of ‘independent directors’ on corporate boards and the strictness of the laws promoting ‘independent directors’. The paper explains why the meteoric rise of the ‘independent director’ in Asia is complex. Although the label ‘independent director’ has been transplanted precipitously from the US (in some cases via the UK) throughout Asia, who is labelled an ‘independent director’ (i.e., the ‘form’ that independent directors take) and what independent directors do (i.e., the function they perform) in Asia differ significantly from the American concept of the independent director. To add to the complexity, the form and function of ‘independent directors’ varies within Asia from jurisdiction to jurisdiction. As such, in reality, there are ‘varieties of independent directors in Asia’—none of which conform to the American concept of the independent director. This challenges the widely-held assumption that independent directors are universally similar, and complicates inter-jurisdictional comparisons. The paper attempts to overcome this comparative hurdle by identifying six factors that have driven the evolution of diverse, jurisdiction-specific, varieties of independent directors in Asia: (1) shareholder ownership structures; (2) legal origins; (3) types of shareholders; (4) functional substitutes; (5) political economy; and, (6) cultural norms. These factors provide a basis for constructing a ‘loose taxonomy’ of the varieties of independent directors in Asia, which provides a useful tool for identifying which inter-jurisdictional comparisons are likely to yield significant insights and which are likely to mislead. It concludes with a discussion on how an understanding of the varieties of independent directors in Asia can advance corporate governance practice and contribute to comparative corporate governance theory.
Keywords: Independent directors, comparative corporate law and governance, Asian corporate law and governance, shareholder ownership structures, controlling shareholders, legal origins, family firms, SOEs, GLCs, functional substitutes, political economy, cultural norms, board of directors, supervisory board
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