The State Council has decided to further optimize the independent director system of listed companies, enable directors to better perform their duties and fully leverage their roles, according to a circular released on April 14.
Guided by the ideas of enhancing construction of a basic capital market system, improving the independent director system of listed companies to meet the requirements of a modern enterprise system and greatly improving the quality of listed companies, the reform should provide support for a standardized, transparent, open, dynamic and resilient capital market.
The independent director system should be a significant institutional arrangement for the administration of listed companies and effectively leverage the directors’ roles in decision-making, supervision and advisory work, the circular read adding the reform should also carry Chinese characteristics.
The reform aims to better match the rights and responsibilities of directors, optimize their functions, further cement supervision and make selection and management more scientific to enable the system to play an important role in improving the modern enterprise system, refine the enterprise supervision system and promote the healthy and steady development of a capital market.
To that end, the first task is to improve institutional supply systems and clarify the independent directors’ legal status and responsibilities in the listed companies' administration.
How independent directors perform their duties will also be optimized. The circular mandates listed companies optimize the composition of boards of directors, with independent directors taking up more than one-third. For State-controlled listed companies, external directors, including independent directors, should predominate.
A system of independent director accreditation should be established. It will clarify the requirements for application, review and disclosure of the qualifications of independent directors, and prudently assess whether those proposed are qualified.
The circular said securities regulators should strengthen the organization and supervision of accreditation work, and State-owned assets supervision and administration institutions should strengthen supervision of the selection, appointment and management of independent directors at State-controlled listed companies.
An optimized nomination mechanism should be in place in order to support the board of directors, supervisory board and eligible shareholders of listed companies to nominate independent directors, and entities like investors' protection agencies are also encouraged to nominate independent directors via legal public solicitation of shareholders’ rights.
Listed companies should also provide necessary conditions in terms of institutions, personnel, resources, information, funds and other factors to ensure independent directors fully perform their duties in accordance with the law.
Strict supervision and management of the independent directors’ performance is also required. An incentive and restraint mechanism for independent directors’ reputations should be established and incorporate performance into credit records in the capital market. Likewise, an improved independent director responsibility restraint mechanism should be worked out.
The circular also stressed establishing an improved internal supervision system in coordination with the supervision of independent directors.
Additionally, regions, departments and units should publicize the significance of the campaign through multiple channels and platforms.
