China to Clarify Independent Director Roles

The China Securities Regulatory Commission (CSRC) has issued draft rules for consultation on the administration of independent directors of listed companies. The CSRC’s draft rules clarify the role of independent directors to remove ambiguity about their core responsibilities and strengthen their involvement in listed company supervision, governance and decision-making. It will also establish a qualification system, code of professional ethics, and information database for independent directors of listed companies. The CSRC said independent directors can help to address matters of conflict of interest, given that financial fraud and the use of related party transactions by large shareholders are still “prominent problems in China’s capital market” that can damage the interests of listed companies. The rules strengthen the role of independent directors ensuring that board-level decision-making is in line with the overall interests of the company and serve to protect the rights and interests of small and medium shareholders. The CSRC said that independent directors should account for at least one-third of the board of directors of listed companies, while external directors (including independent directors) should account for the board majority at state-owned listed enterprises. The rules also propose improvements to the conditions of appointment, nomination, election, and continuous management of independent directors.

 

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