The Independent Director in Chinese Corporate Governance

104 Pages Posted: 15 Apr 2006 Last revised: 25 Jul 2014

Donald C. Clarke

George Washington University Law School

Date Written: 2006

Abstract

Corporate governance (gongsi zhili) is a concept whose time has come in China, and the institution of the independent director is a major part of this concept. Policymakers in several countries such as the United Kingdom and Japan have turned to independent directors as an important element of legal and policy reform in the field of corporate governance. In August 2001, the China Securities Regulatory Commission (CSRC) issued its Guidance Opinion on the Establishment of an Independent Director System in Listed Companies. Covering all companies listed on Chinese stock exchanges (but not Chinese companies listed overseas), it constitutes the most comprehensive measure taken to date by the CSRC - or indeed by any Chinese governmental authority - to regulate internal corporate governance through the institution of the independent director.

This article discusses the institution of independent directors, and the Independent Director Opinion specifically, as a potential solution to Chinese corporate governance problems. It begins by discussing special features of the Chinese corporate landscape and the most prominent problems in the area of corporate governance. It then proceeds to identify differing conceptions of what is broadly termed the independent director - the outside director, the disinterested director, and the (more narrowly defined) independent director - and discusses the approaches taken in several different jurisdictions.

The article canvasses empirical research on the relationship between independent directors and corporate performance in the United States, as well as in China, and finds that the research yields similar conclusions: there is no strong link. The article concludes by arguing that proponents of the institution of independent directors misconceive the nature of the corporate governance problem in China, as well as the functioning of independent directors in the United States, and have not taken into account specific features of the Chinese institutional environment - particularly the legal environment - that affect the viability of any proposed solution.

Keywords: China, Chinese law, corporate governance, directors, independent directors, disinterested directors, outside directors

JEL Classification: D21, G34, K22, L20

Suggested Citation

Clarke, Donald C., The Independent Director in Chinese Corporate Governance (2006). Delaware Journal of Corporate Law, Vol. 31, No. 1, pp. 125-228, 2006; GWU Legal Studies Research Paper No. 204; GWU Law School Public Law Research Paper No. 204. Available at SSRN: https://ssrn.com/abstract=895588

Donald C. Clarke (Contact Author)

George Washington University Law School ( email )

2000 H Street, N.W.
Washington, DC 20052
United States
202-994-2830 (Phone)
202-318-4479 (Fax)

HOME PAGE: http://docs.law.gwu.edu/facweb/dclarke/

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