Giving full play to the role of independent directors and improving their ability to perform their duties, their awareness of their duties, and their performance guarantees are important parts of improving the corporate governance of banking and insurance institutions.
Recently, a reply issued by the Xinjiang Supervision Bureau of the State Administration of Financial Supervision shows that after review, it was found that Yang Xinshun has "business contacts or creditor's rights and debts between the institution where he or his close relatives work and the financial institution he intends to work for, so as to hinder his independence in performing his duties", and Yang Xinshun's qualifications as an independent director of Urumqi Rural Commercial Bank Co., Ltd. were not approved.
In fact, it is not the first time that an application for an INED appointment similar to that of Urumqi Rural Commercial Bank has been rejected by the regulator this year. In January, the reply issued by the Suzhou Supervision Branch of the State Administration of Financial Supervision showed that after investigation and conversation, Ma Shuming did not have the relevant knowledge and experience required to hold the proposed position, and did not meet the requirements of Article 102, Item 4 of the "Implementation Measures for Administrative Licensing Items of Rural Small and Medium-sized Banking Institutions of the China Banking and Insurance Regulatory Commission" (Order No. 5 of 2022 of the China Banking and Insurance Regulatory Commission), and did not approve Ma Shuming's qualifications as an independent director of Anhui Lingbi Rural Commercial Bank Co., Ltd.
Independent directors should be both "independent" and "understanding"
Independent directors refer to directors who do not hold any positions other than directors in the banking institution they work for, and who have no relationship with the shareholders or actual controllers of the banking institution that may affect their independent and objective judgment on the company's affairs.
In recent years, there has been an increase in the discussion of independent directors such as "INEDs do not understand", "INEDs do not understand", and "INEDs do not know". In response to these problems, the financial management department has repeatedly emphasized the role of independent directors. For example, banking and insurance institutions must establish an independent director system, with independent directors accounting for no less than one-third in principle, shareholders and their affiliates who have nominated non-independent directors are not allowed to nominate independent directors, and independent directors are responsible for the board of directors' audit, nomination, remuneration and related party transaction control committees. In strict accordance with legal procedures, independent directors are selected and hired through multiple channels, so as to improve the independence of performing their duties and prevent independent directors from becoming tools of "manipulation by major shareholders" or "insider control".
"In recent years, the regulatory authorities have become more stringent in their scrutiny of directors and senior executives to ensure that the proposed personnel have the appropriate qualifications, competence and integrity, because directors and senior executives play a vital role in financial institutions, and their decision-making and management capabilities directly affect the sound operation of financial institutions and the overall stability of financial markets. Zhou Yiqin, founder of Guanyuan Consulting, said in an interview with a reporter from the Financial Times.
According to Zhou Yiqin, there may be several reasons why the appointment of directors or senior executives of Chinese commercial banks has not been approved by the regulators: First, the proposed personnel have not been approved because they lack the relevant knowledge, experience and ability required for the proposed position. Second, the proposed personnel have been personally responsible or directly responsible for major losses in the organization they are working for, which will affect the approval of their qualifications. The third is personal and family financial problems. For example, if a proposed person has a large amount of overdue debts that cannot be repaid, it may lead to the disapproval of qualifications. Fourth, there is a conflict of interest, which may hinder their independence in the performance of their duties. Fifth, wear many hats. Proposed appointees who hold key positions in multiple agencies at the same time may not be approved because there is insufficient time and energy to carry out their duties effectively.
"At present, most of the independent directors of mainland banking institutions come from universities and research institutions, have been engaged in theoretical research for a long time, lack practical work experience, do not have practical experience in commercial bank operation management, financial accounting, etc., and it is difficult to put forward targeted and professional opinions. Dong Ximiao, chief researcher of Zhaolian, told the Financial Times that the selection of independent directors by commercial banks should mainly be selected from people who are familiar with the operation and management of commercial banks, have rich practical experience and have expertise in finance, finance and law.
Source: Financial Times client
Reporter: Xu Beibei
Editor: Yang Jingyi
Email: [email protected]