Cover

Half-title

Series information

Title page

Copyright information

Table of contents

List of figures

List of tables

List of contributors

Acknowledgments

List of abbreviations

Introduction

I The Rise of the Independent Director in the West and Asia

II Why Asia Matters

III The Independent Director Defined

IV Organisation of the Book

Part I Theoretical Framework

1 The Rise of the Independent Director in the West

I Introduction

1 Why Origins Matter

2 Independence as a Magic Cure

3 Who Is Independent?

II Historical Origins of the Board of Directors

1 Medieval Guilds and Chartered Companies

2 The First Joint-Stock Companies

3 The Rise of the Executive Director and the Split of the Board

III From ‘Shirtsleeve’ Directors to Independent Directors: Developments in the US

1 The Era of Inside Directors

2 The Battle of the 1970s

3 Success of the Monitoring Model

4 Scandals, Crises and Reforms after 2000

5 Super-Majority Boards

6 The Arrival of Agency Capitalism and Shift to a Shareholder-centric System?

7 Too Much of a Good Thing?

IV The Rise of Independent Directors in Europe

1 The UK: Taking the Lead

2 The EU: Building on the UK Experience

3 Germany: Quick on Outside Directors, Slow on Independent Ones

V Should the West’s Independent Director Migrate East?

2 Independent Directors

I Introduction

II Independent Directors and the Financial Crisis

1 The Regulatory and Quasi-Regulatory Push for Independence

2 Scholarly Criticism

3 Lawmakers’ ‘Obsession’ with Independence

III Why Do We Have Independent Directors?

1 Improving the Board’s Performance

2 Criteria of Independence

IV Challenges to Independence

1 Matching Independence with Industry and Ownership Structure

2 Empirical Evidence

3 Incentive Problems

4 Substitutes for Independence

V Towards a Functional Understanding of Board Independence

1 Improving Independence

2 Combining Independence with Dependence

VI Conclusion

3 Varieties of Independent Directors in Asia

I Introduction

II Varieties of Independent Directors in Asia: Diversity Revealed

1 The Myth of the Monolithic ‘Anglo-American’ Independent Director

2 The Independent Director in Asia: Untangling Its Anglo-American Roots

3 The Form of Independent Directors in Asia: Decisively Un-American and Surprisingly Diverse

4 The Functions of Independent Directors in Asia: Diverse Expectations Revealed

5 The Actual Functions of Independent Directors in Asia: Empirical Ambiguity and Contextual Idiosyncrasy

III Understanding the Diverse Varieties of Independent Directors in Asia: A Taxonomy

1 Building the Foundation for a Loose Taxonomy of Independent Directors in Asia

2 The Six Principal Factors Driving the Varieties of Independent Directors in Asia

3 Operationalising the Six Principal Factors to Create a Loose Taxonomy

IV Conclusion: Implications of Varieties of Independent Directors in Asia

Part II Asian Jurisdiction-Specific Chapters

4 Japan’s Gradual Reception of Independent Directors

I Introduction: The Untold Story of Japan’s Unique and Gradual Reform

II Background: Changes over the Last Two Decades

1 Reforms to the Law and Listing Rules

a The Genesis of the Monitoring Board in Japan

b Gradual Promotion of Independent Directors by the TSE

c The 2014 Amendments to the Companies Act

d The Reforms Following the Companies Act Amendments

2 Current Practice in Director Appointments

3 Background Changes in Shareholding Structure

III Recent Reform: 2014 Amendments to the Companies Act

1 Insights from Empirical Research

a Effect of Independent Directors on Firm Value

b Determinants of Board Composition

c Conclusions

2 Political Dynamics Behind the Legal Reforms

a How Did the Working Group Reach Its Conclusion?

Overview of the Discussions at the Working Group

Decision by Unanimity

Opposition of Keidanren

Effect of the Olympus Scandal

b Why Did the LDP Intervene to Modify the Bill, But Then Only Make Slight Changes?

Why Did the LDP Intervene Despite the Low Political Salience of Corporate Governance Issues?

Why Did the LDP Stop Short of a Mandatory Outside Director Requirement?

IV Analysis and Outlook: Where Does Japan Stand, and Whither?

V Conclusion

5 Korea’s Mandatory Independent Directors

I Introduction

II Korean Corporate Governance at a Glance

1 The Korean Corporate Law

2 Korean Companies and the Capital Market

3 Distinctive Features of Korean Corporate Governance

4 Roles of the Board of Directors in Korea

III Rules Governing Independent Directors in Korea

1 Historical Context

a The Asian Financial Crisis and the IMF’s Bailout Programme

b Reforms Pursuant to the IMF Programme

c Reflections on the Historical Context

2 Current Rules

a Minimum Number of Independent Directors

b Independence Requirements

c Nomination Committees

d Audit Committees

IV The Reality of Mandatory Independent Directors in Korea

1 Changes in Board Practices after 2000

2 Number of Independent Directors

3 Monitoring Function Enhanced?

4 Analysis of the Careers of the Independent Directors: Another Function?

V Concluding Remarks

6 Independent Directors in China

I Introduction

II Evolution of China’s Independent Director Regime

1 Share Structure of Chinese Listed Companies

2 Introduction of Independent Directors

3 Independent Directors in Practice

III Independence of Independent Directors

1 Significance of ‘Independence’

2 Different Levels of Independence

3 Practice in China

4 Reform Proposals and Analysis

a Restricting the Rights of Controlling Shareholders

b Nomination or Appointment by a Third Party

c Nomination of Independent Directors by Minority Shareholders

d Other Suggestions

5 Ensuring Independence during Performance of Duties

IV Liabilities of Independent Directors

1 Administrative Penalties

2 Stock Exchange Disciplinary Sanctions

3 Analysis and Suggestions

V Compensation of Independent Directors

1 Regulatory Foundation

2 Current Practice

3 Preliminary Analysis

VI Conclusion

7 From Double Board to Unitary Board System

I Introduction

II Corporate Governance in Taiwan

1 The Reform of the Board Structure

2 Empirical Data

a Public Companies with Independent Directors

b The Occupations of Independent Directors

3 Problems with Multiple Corporate Governance Structures in Taiwan

4 The Characteristics of Corporate Ownership in Taiwan

5 The Role of Independent Directors in Major Board Functions

a Determination of Executive Compensation

b Control over Mergers and Acquisitions

c Control over Self-Dealing

III The Incentives and Independence of Independent Directors

1 Potential of Liability for Independent Directors

a The Courts’ Role in Reducing Liability for Independent Directors for Breaches of Fiduciary Duties

b Lower Proportional Liability in Cases of False Financial Statements by the SFIPC

c Directors and Officers Liability Insurance

2 Remuneration of Independent Directors

3 The True Independence of Independent Directors

a The Definition of Independence

b Social Ties with Controllers

IV Conclusion

8 Independent Directors in Hong Kong

I Background to Corporate Regulation in Hong Kong

II Current Regulatory Regime Relating to Independent Directors: Corporate Governance and the Listing Rules

1 Number and Identification of Independent Directors

2 Qualifications

3 Duties of Independent Non-executive Directors

a Audit Committee

b Remuneration and the Remuneration Committee

c Nomination Committee

d Connected Transactions and Conflicts of Interest

4 Background : Issues for Listed Companies in Hong Kong and the Development of the Listing Rules

III Discussion

1 Compliance with the Independent Director Requirements

2 Commentary on Independent Directors: Success?

3 Quality of Candidates

4 Studies on Independent Directors

5 Alternative Methods of Minority Protection and Enforcement

IV Summary and Conclusion

9 Independent Directors in Singapore

I Introduction

II The Rise of American-Style Independent Directors in Singapore

1 In the (American) Independent Director We Trust

2 The Mythical Transplant of the American Independent Director

3 An Outlier among the Outliers

4 Strategic Regulatory Design: Local Constraints, Signalling and Functional Substitutes

III The Function of American-Style Independent Directors in Singapore

1 Understanding Why Controlling Shareholders in Singapore Have Embraced American- Style Independent Directors

2 The Function of American-Style Independent Directors in Family Firms: Signallers, Mediators and Advisors

3 The Function of American-Style Independent Directors in Government-Linked Companies: Filling the Gap Created by Singapore’s Unique Regulatory Regime

IV Signalling Reform: American-Style Independent Directors Abandoned?

1 The Impetus for the 2012 Reform: Shifting International Standards, PRC-Controlled Firm Scandals and Signalling

2 The Un-American Definition of Independence in the 2012 Code: More of a Change in Form Than Function

3 Strategic Regulatory Design Revisited: The Rationale Behind the 2012 Code’s Restrictive Definition of the Un-American Independent Director

V Uniquely Singaporean, But with Comparative Lessons That Abound

10 Board Independence in India

I Introduction

II How Might Independent Boards Be Useful to Indian Firms?

1 Single Controller vs. Controlling Group

2 Family Controlling Group vs. Non-Family Controlling Group

3 The State as Controlling Shareholder

4 Family Groups and Institutional Environment

5 Desirable Features of Board Independence in India

III Evolution of Norms on Board Independence in India

IV What Effects Do Independent Boards Have?

1 Empirical Studies on the Value of Board Independence

2 Information on the Current Crop of Independent Directors in India

V Recent Reforms and the Increasingly Functional Approach to Board Independence

1 Transitioning to Functionality of Independent Directors

2 Who Is an Independent Director?

3 Appointment of Independent Directors

4 The Role of Independent Directors

a Monitoring Role; Minority Shareholder Interests

b Stakeholder Interests

5 Liability of Independent Directors

6 Reviewing the Independent Director’s Position under the New Regime

VI Future Prospects for Board Independence in India: Potential Reforms?

1 Definition and Appointment of Independent Directors

2 Monitoring Specific Transactions

3 Refining Independent Directors’ Roles for Different Types of Controllers

4 Trade-offs between Expertise and Independence

5 Comparing Effectiveness of Board Independence with Other Players

VII Conclusion

Part III Alternative Perspectives and Conclusions

11 The Rise and Unlikely Demise of Independent Directors in Australia

I Introduction

II The Boards of Australia’s Leading Listed Companies: Role, Size, Composition and Diversity

III Historical Milestones

1 The Bosch Committee Report and the ASX’s First Disclosure Regime

2 The ASX’s ‘If Not, Why Not’ Disclosure Regime since 2003

3 Developments Following the Global Financial Crisis

IV Defining Independent Directors

V Quantitative and Qualitative Research into the Impact and Roles of IDs

VI Conclusions

12 Case Studies of Independent Directors in Asia

I Introduction

II Australia: The Cautionary Tale of HIH and the Problem of Nominal Independence: ‘Independent’ Directors as Lemons

III Taiwan: The ABIT Case: Can Truly Independent Directors Prevent and Detect Deliberate Fraud?

1 Factual Background and History of the Case

2 Role of Independent Directors and Supervisors

IV Japan: Function over Structure – Toyota vs. Sony and Hybrid Structures

1 Background

2 Toyota

3 Sony

4 Traditional Hybrid: Asahi Glass

5 ‘American-style’ Hybrid: Toshiba Corporation

V India: Maruti Suzuki and the Response of Independent Directors to Activist Pressure

VI China: Keda Group and Enforcement of Independent Director Requirements (Duties)

1 China’s Securities Law and Administrative Sanctions for Violations by Independent Directors

2 The Keda Group and Securities Law Violations by Insiders

3 Liability of Independent Directors and Statutory Supervisors

4 CSRC Decision and Discussion

VII Singapore: Family-Controlled Companies and the China Sky (S-Chip) Case

1 Family-Controlled Companies (Minco)

2 China Sky

VIII Discussion

13 Independent Directors in Asia

I Proliferating Independent Director Requirements

II Reassessing Convergence

III Complex Transplants

IV Future Perspectives

Appendix A: Comparative Timelines of Key Developments Relating to Independent Director Requirements in Asia

Chapter 4

Japan’s Gradual Reception of Independent Directors: An Empirical and Political-Economic Analysis

Gen Goto, Manabu Matsunaka and Souichirou Kozuka

Chapter 5

Korea’s Mandatory Independent Directors: Expected and Unexpected Roles

Kyung-Hoon Chun

Chapter 6

Independent Directors in China: Facts and Reform Proposals

Xin Tang

Chapter 7

From Double Board to Unitary Board System: Independent Directors and Corporate Governance Reform in Taiwan

Hsin-Ti Chang, Yu-Hsin Lin and Ying-Hsin Tsai

Chapter 8

Independent Directors in Hong Kong

Vivienne Bath

Chapter 9

Independent Directors in Singapore: A Corporate Governance Outlier?

Dan W. Puchniak and Luh Luh Lan

Chapter 10

Board Independence in India: From Form to Function?

Vikramaditya Khanna and Umakanth Varottil

Chapter 11

The Rise and Unlikely Demise of Independent Directors in Australia

Fady Aoun and Luke Nottage

Appendix B: Legislative Appendix: Key Provisions Relating to Independent Director Requirements in Asia

Chapter 4 – Japan

Article 2 of the Company Act (Definitions)

Article 326 of the Company Act (Organs Other Than the Shareholders’ Meeting)

Article 327-2 of the Company Act (Disclosure of the Reason Why There Is No Outside Director)

Article 328 of the Company Act (The Duty of a Large Company to Have a Board of Statutory Auditors etc.)

Article 331 of the Company Act (Qualifications of Directors)

Article 335 of the Company Act (Qualifications of Statutory Auditor)

Article 400 of the Company Act (Appointment of Committee Members)

Article 25 of Law No. 90 of 2014 (Review)

Rule 436-2 of the Tokyo Stock Exchange’s Securities Listing Regulations (Securing Independent...

Rule 445-4 of the Tokyo Stock Exchange’s Securities Listing Regulations (Securing Independent...

Guideline III.5 of the Guidelines Concerning Listed Company Compliance by the Tokyo...

Guideline III.5.(3)-2 of the Guidelines Concerning Listed Company Compliance by the...

Chapter 5 – Korea

Article 382 of the Korean Commercial Code (Appointment of Directors...

Article 542-8 of the Korean Commercial Code (Appointment of Outside Directors)

Article 542-11 of the Korean Commercial Code (Audit Committees)

Article 542-12 of the Korean Commercial Code (Constitution, etc. of Audit Committees)

Chapter 6 – China

Article 122 of the Company Law

Preface to the Guidelines for the Establishment of an Independent Directors System...

Article 1 of the Guidelines for the Establishment of an Independent Directors System...

Article 2 of the Guidelines for the Establishment of an Independent Directors System by...

Article 3 of the Guidelines for the Establishment of an Independent Directors System...

Article 4 of the Guidelines for the Establishment of an Independent Directors System...

Article 5 of the Guidelines for the Establishment of an Independent Directors System...

Article 6 of the Guidelines for the Establishment of an Independent Directors System...

Article 7 of the Guidelines for the Establishment of an Independent Directors System...

Article 49 of the Code of Corporate Governance for Listed Companies

Article 50 of the Code of Corporate Governance for Listed Companies

Article 51 of the Code of Corporate Governance for Listed Companies

Article 70 of the Code of Corporate Governance for Listed Companies

Summary of the Guidelines for the Exercise of Duties of Independent Directors of Public Companies

Summary of the Working Guidelines for the Filing and Training of Independent Directors...

Chapter 7 – Taiwan

Article 14-2 of the Securities and Exchange Act (Appointment and Qualification of Independent Directors)

Article 14-3 of the Securities and Exchange Act (Matters Required to Be Submitted to Board of Directors...

Article 14-4 of the Securities and Exchange Act (Establishment of Either Audit Committee or Supervisor)

Article 14-5 of the Securities and Exchange Act (Matters Requiring Consent of Audit Committee)

Article 1 of the Regulations Governing Appointment of Independent Directors...

Article 2 of the Regulations Governing Appointment of Independent Directors...

Article 3 of the Regulations Governing Appointment of Independent Directors...

Article 4 of the Regulations Governing Appointment of Independent Directors...

Article 5 of the Regulations Governing Appointment of Independent Directors...

Article 6 of the Regulations Governing Appointment of Independent Directors...

Article 7 of the Regulations Governing Appointment of Independent Directors...

Article 8 of the Regulations Governing Appointment of Independent Directors...

Article 9 of the Regulations Governing Appointment of Independent Directors...

Article 10 of the Regulations Governing Appointment of Independent Directors...

Chapter 8 – Hong Kong

Section 465 of the Companies Ordinance (Duty to Exercise Reasonable Care...

Rule 3.08 of the Rules Governing the Listing of Securities on the Growth Enterprise Market...

Rule 3.09 of the Rules Governing the Listing of Securities on the Growth Enterprise Market...

Rule 3.10 of the Rules Governing the Listing of Securities on the Growth Enterprise Market...

Rule 3.10A of the Rules Governing the Listing of Securities on the Growth Enterprise Market...

Rule 3.11 of the Rules Governing the Listing of Securities on the Growth Enterprise Market...

Rule 3.12 of the Rules Governing the Listing of Securities on the Growth Enterprise Market...

Rule 3.13 of the Rules Governing the Listing of Securities on the Growth Enterprise Market...

Rule 3.14 of the Rules Governing the Listing of Securities on the Growth Enterprise Market...

Rule 3.15 of the Rules Governing the Listing of Securities on the Growth Enterprise Market...

Rule 3.16 of the Rules Governing the Listing of Securities on the Growth Enterprise Market...

Rule 3.17 of the Rules Governing the Listing of Securities on the Growth Enterprise Market...

Rule 3.20 of the Rules Governing the Listing of Securities on the Growth Enterprise Market...

Provision A.1.7 of the Corporate Governance Code and Corporate Governance Report

Provision A.2.7 of the Corporate Governance Code and Corporate Governance Report

Provision A.3 of the Corporate Governance Code and Corporate Governance Report (Board Composition)

Provision A.3.1 of the Corporate Governance Code and Corporate Governance Report

Provision A.3.2 of the Corporate Governance Code and Corporate Governance Report

Provision A.4 of the Corporate Governance Code and Corporate Governance Report...

Provision A.4.1 of the Corporate Governance Code and Corporate Governance Report

Provision A.4.2 of the Corporate Governance Code and Corporate Governance Report

Provision A.4.3 of the Corporate Governance Code and Corporate Governance Report

Provision A.6 of the Corporate Governance Code and Corporate Governance Report...

Provision A.6.1 of the Corporate Governance Code and Corporate Governance Report

Provision A.6.2 of the Corporate Governance Code and Corporate Governance Report

Provision A.6.3 of the Corporate Governance Code and Corporate Governance Report

Provision A.6.4 of the Corporate Governance Code and Corporate Governance Report

Provision A.6.5 of the Corporate Governance Code and Corporate Governance Report

Provision A.6.6 of the Corporate Governance Code and Corporate Governance Report

Provision A.6.7 of the Corporate Governance Code and Corporate Governance Report

Provision A.6.8 of the Corporate Governance Code and Corporate Governance Report

Chapter 9 – Singapore

Section 2 of the 2001 Corporate Governance Code (Board Composition and Balance)

Principle 2

Guideline 2.1

Guideline 2.2

Section 4 of the 2001 Corporate Governance Code (Board Membership)

Principle 4

Guideline 4.1

Section 7 of the 2001 Corporate Governance Code (Procedures for Developing Remuneration Policies)

Principle 7

Guideline 7.1

Guideline 7.2

Section 11 of the 2001 Corporate Governance Code (Audit Committee)

Principle 11

Guideline 11.1

Guideline 11.2

Section 2 of the 2005 Corporate Governance Code (Board Composition and Guidance)

Principle 2

Guideline 2.1

Guideline 2.2

Guideline 2.4

Section 3 of the 2005 Corporate Governance Code (Chairman and Chief Executive Officer)

Principle 3

Guideline 3.1

Section 4 of the 2005 Corporate Governance Code (Board Membership)

Principle 4

Guideline 4.1

Section 7 of the 2005 Corporate Governance Code (Procedures for Developing Remuneration Policies)

Principle 7

Guideline 7.1

Section 11 of the 2005 Corporate Governance Code (Audit Committee)

Principle 11

Guideline 11.1

Guideline 11.2

Section 2 of the 2012 Corporate Governance Code (Board Composition and Guidance)

Principle 2

Guideline 2.1

Guideline 2.2

Guideline 2.3

Guideline 2.4

Guideline 2.6

Section 3 of the Corporate Governance Code 2012 (Chairman and Chief Executive Officer)

Principle 3

Guideline 3.1

Guideline 3.3

Section 4 of the Corporate Governance Code 2012 (Board Membership)

Principle 4

Guideline 4.2

Section 7 of the 2012 Corporate Governance Code (Procedures for Developing Remuneration Policies)

Principle 7

Guideline 7.1

Section 12 of the 2012 Corporate Governance Code (Audit Committee)

Principle 12

Guideline 12.1

Guideline 12.2

Section 201B of the 1989 Companies Act (Audit Committees)

Section 201B of the 2006 Companies Act (Audit Committees)

Chapter 10 – India

Section 149 of the Companies Act, 2013 (Company to Have Board of Directors)

Section 150 of the Companies Act, 2013 (Manner of Selection of Independent...

Section 152 of the Companies Act, 2013 (Appointment of Directors)

Section 166 of the Companies Act, 2013 (Duties of Directors)

Section 177 of the Companies Act, 2013 (Audit Committee)

Section 178 of the Companies Act, 2013 (Nomination and Remuneration...

Section 197 of the Companies Act, 2013 (Overall Maximum Managerial Remuneration...

Schedule IV of the Companies Act, 2013 [see Section 149(8)] – Code for Independent Directors

Provision I of the Code for Independent Directors (Guidelines of Professional Conduct)

Provision II of the Code for Independent Directors (Role and Functions)

Provision III of the Code for Independent Directors (Duties)

Provision IV of the Code for Independent Directors (Manner of Appointment)

Provision V of the Code for Independent Directors (Re-appointment)

Provision VI of the Code for Independent Directors (Resignation or Removal)

Provision VII of the Code for Independent Directors (Separate Meetings)

Provision VIII of the Code for Independent Directors (Evaluation Mechanism)

Rule 4 of the Companies (Appointment and Qualification of Directors) Rules...

Rule 5 of the Companies (Appointment and Qualification of Directors) Rules...

Rule 6 of the Companies (Appointment and Qualification of Directors) Rules, 2014...

Article II.A of Clause 49 of the Listing Agreement (Composition of Board)

Article II.B of Clause 49 of the Listing Agreement (Independent Directors)

Article II.B of Clause 49 of the Listing Agreement (Non-Executive Directors’...

Article II.D of Clause 49 of the Listing Agreement (Other Provisions as to Board and Committees)

Article II.E of Clause 49 of the Listing Agreement (Code of Conduct)

Article III.A of Clause 49 of the Listing Agreement (Qualified and Independent Audit Committee)

Article IV of Clause 49 of the Listing Agreement (Nomination and Remuneration Committee)

Article V of Clause 49 of the Listing Agreement (Subsidiary Companies)

Chapter 11 – Australia

Recommendation 2.1 of the ASX Corporate Governance Principles and Recommendations (3rd edition 2014)

Recommendation 2.3 of the ASX Corporate Governance Principles and Recommendations (3rd edition 2014)

Recommendation 2.4 of the ASX Corporate Governance Principles and Recommendations (3rd edition 2014)

Recommendation 2.5 of the ASX Corporate Governance Principles and Recommendations (3rd edition 2014)

Recommendation 4.1 of the ASX Corporate Governance Principles and Recommendations (3rd edition 2014)

Recommendation 7.1 of the ASX Corporate Governance Principles and Recommendations (3rd edition 2014)

Recommendation 8.1 of the ASX Corporate Governance Principles and Recommendations (3rd edition 2014)

ASX Listing Rule 4.10: Additional Information to Be Included by All Entities

Bibliography

Index