An overview of the independent director system in China

The independent director system originated from the United States in the 1970s. The system is widely accepted as an important action to improve corporate governance and has now become the common choice among different corporate governance patterns. In 1997, independent directors were first introduced into Chinese listed companies. In August 2001, the China Securities Regulatory Commission (CSRC) formulated the Guidelines for Introducing Independent Directors to the Board of Directors in Listed Companies (the 2001 Guidelines). The independent director system has since been formally established in China. In the United States and the United Kingdom, the corporate governance structure is a one-tier model, which has the board of directors as the only board. Introducing the independent director system aims at supervising the performance of the board of directors. However, in China the corporate governance is a two-tier model, similar to the structure in German companies. Chinese listed companies have a board ofdirectors, as well as a supervisory board. The latter monitors the performance of the directors.