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Guidelines for Introducing Independent
Directors to the Board of Directors of Listed Companies - 2001
All listed companies,
To further improve the governance structure of listed companies and
standardize their operation, China Securities Regulatory Commission
(CSRC) formulates the Guidelines for Introducing Independent Directors
to the Board of Directors in Listed Companies. All listed
companies are required to act in accordance with the Guideline. China
Securities Regulatory Commission
To further improve the corporate governance structure and operation of
listed companies, we propose the following Guidelines for
introducing independent external director (hereinafter "independent
director") system in listed companies.
I. Listed
companies shall introduce independent directors to their boards of
directors
1. Independent
directors of the listed company refer to the directors who hold no posts
in the company other than the position
of director, and who maintain no relations with the listed company and
its major shareholder that might prevent them from making
objective judgment independently.
2. The
independent directors shall bear the duties of good faith and due
diligence and care towards the listed company and all the
shareholders. They shall earnestly perform their duties in accordance
with laws, regulations and the company's articles of
association, shall protect the overall interests of the company, and
shall be especially concerned with protecting the interests of
minority shareholders from being infringed. Independent directors shall
carry out their duties independently and shall not subject
themselves to the influence of the company's major shareholders, actual
controllers, or other entities or persons who are interested
parties of the listed company. In principle, independent directors can
only hold concurrently the post of independent directors in five
listed companies at maximum. They shall have enough time and energy to
perform the duties of the independent directors effectively.
3. All
domestically listed companies shall make necessary amendments
to the articles of association in accordance with the requirements set
in the Guidelines and appoint qualified persons to be
independent directors. At least one of the independent directors
should be an accounting professional (refers to personnel with
senior professional title or certified public accountants). By June
30th, 2002, at least two members of the board of directors shall be
independent directors; and by June 30th, 2003, at least one third of
board shall be independent directors.
4. In case independent directors fail to meet the requirements for
independence or are not qualified to perform the duties of
independent directors, and as a result, the number of independent
directors fail to reach the requirements stipulated in the
Guidelines, the listed companies shall make up for the deficiency by
electing new independent directors to the board in accordance with
the requirements of the Guidelines.
5. Independent directors and nominees for independent directors
shall take part in the training organized by CSRC and its authorized
institutions in accordance with the requirements of CSRC.
II. Independent directors shall have the qualifications required to
perform their duties.
An independent director shall meet the following basic requirements:
1. With qualifications required to be a director of listed companies
according to laws and regulations;
2. Meet the independence requirements as stated in the Guidelines;
3. With basic knowledge on the operation of listed companies and
familiar with the relevant laws and regulations;
4. With more than five years' work experience in law, economics or
other fields required by his or her performance of the duties of an
independent director;
5. Other requirements set forth in the articles of association.
III. Independent directors shall meet the "independence"
requirements.
A person may not hold the position of the independent director in
any of the following circumstances:
1. the person who holds a position in the listed company or its
affiliated enterprises, their direct relatives and major social
relations (direct relatives refer to their spouse, father, mother
and children etc.; major social relations refer to their brothers,
sisters, father-in-law, mother-in-law, daughter-in-law, son-in-law,
spouse of their brothers, sisters, and their spouse's brothers and
sisters etc.);
2. the person who holds more than 1% of the outstanding shares of
the listed company directly or indirectly, or the natural person
shareholders of the 10 largest shareholders of the listed company,
or such shareholder's direct relative;
3. the person who holds a position in a unit which holds more than
5% of the outstanding shares of the listed company directly or
indirectly, or of the unit which ranks as one of the 5 largest
shareholders of the listed company, or such employee's direct
relative;
4. the person meeting any of the three above-mentioned conditions in
the immediate proceeding year;
5. the person providing financial, legal or consulting services to
the listed company or its subsidiaries;
6. the person stipulated in the articles of association;
7. the person determined by the CSRC.
IV. The nomination, election and replacement of independent
directors shall be made in accordance with the laws and regulations.
1. Board of directors, supervisory board and shareholders who
independently or jointly hold more than 1% of the shares issued by
the listed company may nominate independent directors, who will be
voted at the shareholders' meeting;
2. The consent to the nomination shall be obtained from the nominee
before the nomination. The nominator shall have the full knowledge
of the nominee's general information such as profession, educational
background, professional title, detailed working experience and all
other posts he or she concurrently holds, and give opinion on the
nominee's qualifications and the independence required as an
independent director. The nominee shall make a statement that he/she
has no relationship with the listed company that may affect his/her
independent objective judgment.
Before convening the shareholders' meeting concerning the election
of the independent director, the board of the directors shall make
such statement public in accordance with relevant regulations.
3. Prior to convening the shareholders' meeting for the election of
independent directors, listed companies shall submit the relevant
materials of the nominees to the CSRC, local offices of the CSRC in
the areas where the company is located and the stock exchange where
the company is listed. If the company's board of directors raises
objection to relevant conditions of the nominees, such opinions
shall also be submitted in written.
Within 15 working days, the CSRC shall examine the qualifications
and independence of the nominated independent directors. If the
nominee is objected by the CSRC, he or she can still be a candidate
for director but not independent director. At the general
shareholders meeting where the independent directors are to be
elected, the board of directors shall clarify whether the nominee
has been objected by the CSRC. If the independent directors were
elected prior to the issuing of the Guidelines, the listed company
shall, within one month after the implementation of the Guidelines,
submit the above-mentioned materials to CSRC, local offices of CSRC
in the areas where the company is located and the stock exchange
where the company is listed.
4. The term of office of the independent director shall be the same
as that of others directors in the listed company. Upon the expiry
of their term, he or she may serve another term if re-elected.
However, their consecutive term shall not exceed 6 years.
5. If the independent director fails to attend the board meeting in
person for three consecutive times, the board of directors may
request the shareholders' meeting to replace the director.
The independent director shall not be dismissed from the listed
company without proper reason before the term of his/her office
expires, except for the above-mentioned reason or in those
circumstances that a person may not be qualified to hold the
position of a director stipulated in the Company Law. If an
independent director is dismissed by the listed company before the
term of his/her office expires, the listed company shall disclose
the dismissal as special disclosure matter. If the dismissed
independent director deems the reason for the dismissal improper,
he/she shall be entitled to make a public statement.
6. The independent director may resign before the term of his/her
office expires. He/She shall submit the written resignation report
to the board of directors and spell out the circumstances related to
the resignation or those that need the attention of the shareholders
and the creditors of the listed company. If the resignation of the
independent director causes the number of the independent directors
in the board of directors to become less than the minimum number
required by the Guidelines, the resignation report of the
independent director shall take effect after the subsequent
appointed independent director fills the vacancy.
V. The role of the independent director in listed companies shall be
adequately activated
1. In order to make the independent director play an active role,
the independent director shall have the following special powers
other than those stipulated in the Company Law and other relevant
laws and regulations:
a. Major related party transactions (referring to transactions that
the listed company intends to conclude with the related party and
whose total value exceeds RMB three million or 5% of the company's
net assets audited recently) should be approved by the independent
director before being submitted to the board of directors for
discussion; before the independent director makes his or her
judgment, an intermediary agency can be employed to produce an
independent financial advisory report, which will serve as the basis
for his or her judgment.
b. The independent directors can put forward the proposal to the
board of directors relating to the appointment or removal of the
accounting firm;
c. can propose to the board of directors to call an interim
shareholders' meeting;
d. can propose to call a meeting of the board of directors;
e. can appoint the outside auditing or consulting organization
independently;
f. The independent directors can solicit the proxies before the
convening of the shareholders' meeting.
2. Consent from over 1/2 of all the independent directors shall be
obtained if an independent director desires to exercise the
above-mentioned power.
3. If the above proposals are not adopted or the above power cannot
be exercised, the listed company should disclose the related
information.
4. A listed company shall have one-half or more independent
directors in the subordinate committees of the board of directors in
terms of remuneration, auditing or nomination committees, if such
committees are set up.
VI. The independent director shall express the independent opinion
on the major events occurred in the listed companies
1. Apart from carrying out the above-mentioned duties, the
independent director shall provide the independent opinion on the
following matters to the board of the directors or to the
shareholders' meeting:
a. Nomination, appointment or replacement of directors;
b. Appointment or dismissal of senior managers;
c. Remuneration for directors and senior managers;
d. Any existing or new loan borrowed from the listed company by or
other funds transfer made by the company's shareholders, actual
controllers or affiliated enterprises that exceeds RMB three million
or 5% of the company's net assets audited recently, and whether the
company has taken effective measures to collect the amount due;
e. Events that the independent director considers to be detrimental
to the interests of minority shareholders;
f. Other matters stipulated by the articles of association.
2. With respect to the above-mentioned matters the independent
director shall provide one of the following kinds of opinions: a
consent opinion, a reserved opinion, a negative opinion, or a
non-comment opinion and the respective reasons for giving such
opinions.
3. If matters need to be disclosed, the listed company shall publish
the opinion provided by the independent director. If the independent
directors disagree themselves and are not able to reach the
consensus, the board of directors shall disclose the independent
directors' respective opinions separately.
VII. For the purpose of performing the duties effectively listed
companies shall provide necessary working facilities for the
independent director 1. Listed companies shall ensure that the
independent director has the same right to be kept informed as the
other directors in the companies. With respect to the important
matters necessary to be submitted to the board meeting for
consideration, listed companies shall notify the independent
director in advance within legally prescribed time and provide them
sufficient material and documents. The independent directors may ask
for supplementary material if they consider the given documents
incomplete. While two or more independent directors consider that
the material and documents provided to them are insufficient or
unclear, they may jointly propose to postpone the meeting or to
postpone the discussion of the related matter, which should be
adopted by the board of the directors. The material provided by the
listed company shall be preserved by the listed company and the
independent director him/herself for at least five years. 2. The
company shall make the necessary working facilities available to the
independent directors for them to perform their duties. The
secretary of the board of directors shall actively provide
assistance to the independent director by providing information,
material and documents and etc. If the independent opinion, proposal
and written statement given by the independent director shall be
made public, the secretary of the board of directors shall handle
the matters concerning the announcement at the stock exchange
without delay.
3. When the
independent director exercises his/her
power, the persons concerned in the listed company shall cooperate
actively and shall not turn down the independent director's proper
request, nor shall they hinder the independent director's work or
conceal the information. The independence of the independent
director shall not be intervened.
4. The
reasonable expenses
incurred from the engagement of intermediary agencies and other
expenses relating to the performing of duties by the independent
director shall be borne by the company.
5.
Listed companies shall
grant the appropriate allowance to the independent director. The
standard of the allowance shall be proposed by the board of
directors' meeting, approved by the shareholders' meeting, and be
disclosed in the company's annual report. The independent director
shall not receive any extra non-disclosed interests and compensation
from the listed company, its major shareholders, or other interested
entities and individuals other than the above-mentioned allowance.
6. The listed company may purchase liability insurance for
independent directors to lower the risks that may occur during the
performance of du |
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