Watson, "China's First Independent Director", talked about the independent director system: The role is indeed not great, and this money is spent very unjustly

21st Century Business Herald reporter Han Xun reported from Shanghai

"We basically don't hear any voices from independent directors, nor do we see independent directors doing anything or playing much of a role in corporate governance." Objectively evaluated, the role of independent directors is indeed not large. On November 26, Professor Watson, a well-known economist, said in an exclusive interview with the 21st Century Business Herald reporter that the original establishment of the independent director system in China's capital market was to improve the governance structure of listed companies and promote the standardized operation of listed companies. ”

- Watson

In August 2001, the China Securities Regulatory Commission (CSRC) issued the Guiding Opinions on the Establishment of an Independent Director System in Listed Companies, which mandated all listed companies to establish an independent director system in accordance with the provisions of the Opinions; in September 2004, the CSRC issued the Several Provisions on Strengthening the Protection of the Rights and Interests of Shareholders of Public Shares, which further affirmed and improved the independent director system, and the new Company Law also clearly stipulates the establishment of an independent director system.

This imported product of independent directors has entered the corporate governance structure system of Chinese companies step by step. However, in the past two decades of operation, China's capital market has developed rapidly, but independent directors have encountered various questions such as "not independence", "do not understand", "vase" and so on.

Recently, in the "Kangmei Pharmaceutical Case", the five independent directors at the time were judged by the court to bear joint and several liability for joint and several liability, which became a hot topic in the market, and the five independent directors were required to bear joint and several liability for compensation ranging from 5% to 10% of the total amount, which was converted into specific compensation amounts of about 123 million yuan and 246 million yuan.

Corresponding to the huge compensation is their allowance, among the five independent directors, the largest allowance is about 100,000 yuan, and the lowest is only 71,000 yuan. The question of the operation of the independent director system has aroused the thinking of people from all walks of life in the market.

Watson is one of the three major proposals and promoters of the reform of China's economic reform - the dual-track price system, the state-owned assets system, and the reform of equity splitting. At the same time, he is also an important witness and defender of China's modern corporate governance model, as a former independent director of Vanke A shares, Watson carried the pressure of all parties to support the company's management in the "Baowan Dispute".

Therefore, on the issue of the current independent director system in China's capital market, the 21st Century Business Herald reporter interviewed Professor Watson.

21st Century: How do you evaluate the role of the independent director system in China's capital market?

Watson: Objectively speaking, the overall role is very limited. We basically don't hear any voices from independent directors, nor do we see independent directors doing anything, or playing a real role in corporate governance. Objectively evaluated, the role of independent directors is indeed not great.

"21st Century": If independent directors can only be the "vase" of listed companies, and cannot play a fair and independent role, why not cancel the independent director system? Will the abolition of the independent director system affect the governance of listed companies?

Watson: When we first started to build the securities market, most of the institutional provisions were copied from the West, and the independent director system was introduced at that time. At that time, we did not notice any difference between China's securities market and the capital markets of British and American countries, such as the difference in the ownership structure of listed companies.

The Anglo-American securities market also did not have an independent director system in the first one or two hundred years, and it was only in the second half of the 20th century that it began to develop. Then, the vast majority of our current listed companies are still enterprises controlled by the major shareholder "one share", and independent directors cannot play any role in the board of directors. However, thousands of listed companies, more than 10,000 independent directors, compensation and other related expenses are also a big number, it should be said that this money is spent very unjustly.

21st Century: At present, what are the shortcomings of China's securities market independent director system? What are the biggest obstacles to the effective functioning of independent directors?

Watson: I think the biggest flaw, or the biggest obstacle, is that the independent director is recommended or nominated by the major shareholder of the listed company, and it is a subsidy issued by the listed company. So, would you say that a man you paid to hire would vote against you? Moreover, many independent directors are acquaintances or friends of the owner of the listed company, or they are introduced to him by others, so do you think the boss will invite a person who opposes him to the board of directors of the listed company to sing "the stage drama"? This is clearly a paradox.

"21st Century": In the past three years, the China Securities Regulatory Commission has imposed administrative penalties on independent directors about 60 times, and the exchange has taken disciplinary punishments against independent directors more than 110 times. Why has so many years of regulatory penalties, no kangmei pharmaceutical industry once punished so much that it touched the "soul" of independent directors?

Watson: The huge fine is definitely an important incentive, once it is really implemented, these independent directors will sell their houses to pay off the debt, of course, touching the "soul". However, in my opinion, this judgment of Kangmei Pharmaceutical has played a very important warning role in China's capital market. Its greatest significance is that it has touched the "key point" of the independent director system, so that the independent directors, regulators, the market, and other stakeholders have realized for the first time that the independent director system in China's securities market must be fundamentally reflected, can it continue to be carried out like this?

"21st Century": Is it fair for the joint and several liquidation liabilities of the independent directors of Kangmei Pharmaceutical? If they need to be held accountable, what should they be held responsible for?

Watson: This should be viewed from a different perspective as "fair and unfair." From a legal point of view, there is nothing unfair, because the courts have imposed their responsibility in accordance with the relevant legal provisions. What's more, the court's judgment is not aimed at independent directors, but the directors of the board of directors are liable. Whether you are a director or an independent director, if a listed company has a big illegal problem, you directors must bear responsibility. There is this provision in the Company Law, so from this point of view, you can't say it's unfair, right?

Another point of view, is it that the independent director takes less allowance, so he should not bear such a heavy punishment? The accountants of Kangmei Pharmaceutical have more responsibilities than the independent directors this time, and I see that no certified public accountant has jumped out and shouted injustice. More importantly, there is a problem with the independent director system in China's securities market itself, so the matter of "joint and several liquidation liability" can be discussed, and it cannot be simply said to be fair or unfair.

21st Century: How to Promote the Reform of the Independent Director System in China's Securities Market? Any suggestions?

Watson: The problem of independent directors that has been exposed so far is not just a question of cancellation or non-cancellation, but how should the corporate governance of Listed Companies in China be done and how to improve it? If everyone says that the independent director system is not working, then what else can be done, can replace the independent director system?

Some people say that if the major shareholders recommend independent directors, should they let the Securities Industry Association or the Small and Medium-sized Investor Protection Association engage in an "independent director pool" and put some independent director candidates in it? The crux of the matter is not here, but the question of how much of a role the independent director plays on the board. On the boards of listed companies in the Anglo-American stock market, independent directors account for the majority of seats, but we put a few people in as a foil, which is not much fun.

However, are the major shareholders of A-share listed companies willing to let the association recommend external independent directors to come in, and are they willing to give up their power? Who pays them a stipend? If it is a listed company with scattered equity, is it more suitable to introduce a system in which independent directors are the majority? This can all be studied. However, in the current situation that almost all of China's listed companies are controlled by major shareholders, it is very difficult for independent directors to play a role in listed companies. Now, our team is doing a think tank research report, hoping to take the opportunity to fundamentally redesign the institutional arrangements suitable for the governance structure of listed companies under the Chinese socialist market economy.

21st Century: What was your reason for becoming an independent director in the first place? Will he continue to serve as an independent director in the future?

Watson: I hardly serve as an independent director, because I have always thought that there are major flaws in the existing independent director system. The only time I went to Vanke as an independent director was because Zhang Yundong, then director of the Shenzhen Securities Regulatory Bureau, personally called me to do work, saying that Vanke was a benchmark enterprise and the management "cherished its feathers"; and Vanke's equity was relatively scattered, and there was no problem of major shareholder control.

Later I said that I could do it without pay. Later, I did it for two sessions, and in fact, the first five years did not play any role, that is, sitting on the cold bench and raising my hand. However, in the last year, Vanke had a storm of "Baowan Dispute", and our independent directors played a great role in it.

It is not to say that how powerful our independent directors were at that time was, there were objective conditions and coincidences. Because Vanke's equity is relatively dispersed, when there is a contradiction between the management and the shareholders, the few votes of our independent director play a decisive role, and later affect the development direction of the entire company. However, it is only an isolated case. Because China's listed companies, whether state-owned enterprises or private enterprises, are almost all controlled by major shareholders. Therefore, after that, I never became an independent director, and of course I will not be an independent director in the future.

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