Wednesday, October 31, 2012

Role of Independent Directors in Corporate Governance

Role of Independent Directors in Corporate Governance
The independent director system originated from countries with a law system of US and UK in which the Common Law is the primary law. These countries usually adopt the Board of Directors system structure of “single system” in the shareholding organization of corporate governance and there isn’t any independent Board of Supervisors in corporate organizational structuring. Therefore, the companies strengthen independence of the Board of Directors, introduce the independent director system, try to reform the supervision mechanism within the existing “single system” framework, and to enable the Board of Directors to exercise the supervision responsibility on the managerial authorities, so as to regress controlling power of the shareholders and to balance the insider control. The so-called independent director refers to a director who doesn’t hold a managerial position in the company in which he holds the position of director, and who doesn’t have a close relation with top management in terms of economics or relative interests. Independence director is particularly crucial in those areas which involve a potential conflict of interests between managers and shareholders: for example, appointment of the management, manager’s pay, and auditing of the company’s performance. America is the country that established the independent director system earliest and perfect
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