What Does an Internal Director Do?

According to the relevant provisions of Chapter VI of the "Company Law of the People's Republic of China" ^[1] , the director (Member of the Board, Director) refers to management with practical powers and authority, which is democratically elected by the company's shareholder (major) meeting or employees The personnel of corporate affairs are the main strength of the company's internal governance, which manages corporate affairs internally and conducts economic activities on behalf of the company externally.

Directors are democratically elected by the shareholders (major) meeting or by employees, and may be held by shareholders or non-shareholders. The term of office of directors is generally specified in the company's internal rules, and there are two types of regular and irregular. The term of office of directors is limited to a certain period of time on a regular basis, but each term cannot exceed 3 years. Irregular refers to re-election at the end of three years from the date of term. Directors may be re-elected upon expiration of their terms of office. The reasons for being dismissed include: failure to reappoint at the expiry of the term; violation of resolutions of the shareholders' general meeting; transfer of shares; resignation; other reasons such as company bankruptcy, dissolution, director death or incapacity. ^[3]

Independent directors are people who do not serve in the company, do not participate in specific affairs, do not have company shares, and can advise the company.

Directors' Terms of Service

According to the "Guiding Opinions on Establishing an Independent Director System in Listed Companies" announced by the Securities Regulatory Commission on August 16, 2001, independent directors should meet the following qualifications:

(1) in accordance with laws, administrative regulations and other relevant regulations, have the qualifications to serve as directors of listed companies;

(2) Having the independence required by the Guiding Opinions;

(3) Possesses basic knowledge of the operation of listed companies and is familiar with relevant laws, administrative regulations, rules and rules;

(4) Having more than five years of legal, economic or other work experience necessary to perform the duties of independent directors;

(5) Other conditions stipulated in the company's articles of association.

To ensure the independence of independent directors, the following persons must not serve as independent directors:

(1) Persons working in listed companies or their affiliated companies and their immediate family members and major social relationships (direct family members refer to spouses, parents, children, etc .; major social relationships refer to siblings, parents-in-law, son-in-law, brother-in-law Spouse, siblings, etc.);

(2) Holding directly or indirectly more than 1% of the issued shares of a listed company or natural person shareholders and their immediate family members among the top ten shareholders of a listed company;

(3) Personnel holding direct or indirect holdings of more than 5% of the issued shares of a listed company or persons serving in the top five shareholder units of a listed company and their immediate family members;

(4) persons who have had the situations listed in the previous three items within the past year;

(5) Personnel who provide financial, legal, consulting and other services for listed companies or their affiliated enterprises;

(6) other personnel specified in the company's articles of association;

(7) Other personnel identified by the China Securities Regulatory Commission. ^[4]

Director Independent Director System

According to the "Guiding Opinions on Establishing an Independent Director System in Listed Companies" promulgated by the Securities Regulatory Commission on August 16, 2001, listed companies should establish an independent director system:

(1) Independent directors of a listed company are those directors who do not hold any position other than directors in the company and do not have a relationship with the listed company and its major shareholders that may be employed to prevent them from making independent and objective judgments.

(2) Independent directors have the obligation to be honest and diligent to listed companies and all shareholders. Independent directors shall perform their duties conscientiously and safeguard the overall interests of the company in accordance with the requirements of relevant laws and regulations, this guidance and the articles of association of the company, and shall pay special attention to the legitimate rights and interests of small and medium shareholders not to be damaged. Independent directors shall perform their duties independently and shall not be affected by the major shareholders and actual controllers of listed companies, or other entities or individuals with a stake in listed companies. In principle, independent directors can concurrently serve as independent directors in up to five listed companies, and ensure that sufficient time and energy are effectively performed as independent directors.

(3) Each domestic listed company shall amend the articles of association in accordance with the requirements of the guidance, and hire appropriate personnel to serve as independent directors, including at least one accounting professional (accounting professionals refer to those with senior titles or qualifications as certified public accountants). Before June 30, 2002, the board of directors should include at least two independent directors; before June 30, 2003, the board of directors of listed companies should include at least one third of independent directors.

(4) When the independent directors do not meet the conditions of independence or are unsuitable to perform the duties of independent directors, which causes the number of independent directors of a listed company to fall short of the number required by the Guiding Opinions of the Securities Regulatory Commission of the Securities and Futures Commission, the listed company The number of independent directors shall be made up as required.

(5) Independent directors and persons who intend to serve as independent directors shall participate in the training organized by the CSRC and its authorized institutions in accordance with the requirements of the CSRC. ^[4]