Seminar paper from the year 2010 in the subject Law - Comparative Legal Systems, Comparative Law, grade: A+, Vanderbilt University (Law School), language: English, abstract: The “independent director” has become a centerpiece of modern corporate governance. However, the concept of “independence”, and the ability of independent directors to fulfill their roles, remains deeply problematical. In the course of the discussion on the proper role of independent directors that unfolded in Europe and the United States during the 1980s and 1990s and peaked in the wake of the Enron scandal, rules on director independence have found their way to the corporate governance regimes of developing countries that turned their head to western economies. Particularly in China and India, independent directors have taken their place on company boards, earning mixed responses from the academic and business community. What is the current state of Indian and Chinese rules on director independence? What tensions do they address and create? And what can be done to optimize the achievement of their objectives? The goal of this article is to examine the status quo of director independence in the two countries, to put the regulations into their historic and political context, to summarize practical experiences with the new institution, and to point to possible future developments.

China is an increasingly influential emerging economy that is currently attracting the attention of academics, practitioners, and policy makers. This book is a collection of cutting edge research findings on issues relating to the experiences and challenges of China's capital market development.

More and more, the agenda of corporate governance reform has been calling for a dramatic change in the composition and structure of boards of publicly traded companies, with particular criticism reserved for the role of independent directors. This timely, ground-breaking book takes a new and rigorous approach to this important issue. Investigating board independence from a distinctly original perspective, the author's systematic analysis explores the effective interaction of such aspects as the following: What specific functions are expected of independent directors? How these functions fit with the unitary board structure? Why independent directors are seen as inherently necessary for corporate governance? Whether board independence can be compatible with other governance mechanisms? How mainstream company law is applied to independent directors. The analysis leads to a series of solutions designed to eliminate the real and perceived obstacles to the proper functioning of independent directors. In the process, the author discusses such critical 'moments' in corporate governance as monitoring, public relations, social responsibility, shareholder activism, the danger of 'groupthink', remuneration, collective liability, and codes of conduct. The discussion and analysis chart a course through which independent directors can better serve the goal of improving the system of corporate governance. As such, it will be greatly appreciated by investors, corporate counsel for institutional investors, and policymakers and academics in relevant areas of both business and law.

Traditional tests to determine the independence of members of the board present an effort to establish independence by showing that the independent director can go about his duties without being beholden to the company in some manner, whether by pecuniary interest or by family or social relationships with other members of the company. But these tests assume that the corporation is situated in a certain legal and political environment where independent director functions are supported by other aspects of society and by law. This act of situating the company in such an environment makes many assumptions that cannot be safely made when evaluating the question of director independence in various foreign jurisdictions. From studying the legal background of the implementation of the independent director system in China, our answer to the question of whether independence is possible is a “yes” with a large “but.” Independence is possible if a political and legal environment nurtures the independent director and allows him to act in order to fulfill his tasks. Such an environment should first, place directors in the dominant position in the corporate organizational structure as the ultimate repository of the managerial powers in the corporation. Second, the securities market of the country should be mature enough to allow for the possibility of competing shareholder groups to be present within the corporation. Third, the corporation must be free to pursue profit maximization as its ultimate goal. Fourth, a strong and independent judiciary should be present that will equitably decide on lawsuits that may be filed to vindicate shareholder or director abuses. Lastly, the responsibilities for policing corporate action must be properly organized such that independent directors can proceed with their task knowing that they will be the ones ultimately responsible.