Independent Directors on China’s Boards: More Business Experiences in Need
Report
An analysis of 2,504 director profiles from CSI 300 companies and 5,917 from S&P 500 companies found independent directors on China’s top boards were more academic but less business oriented.
It is common for board independence in China to be called into question, particularly on matters such as how independent directors were sourced and how they behaved on the board. But what do the independent directors in Chinese companies actually look like?
The analysis included a brief description of Chinese board compositions, as well as director characteristics, including professional experiences, educational backgrounds, age distribution and compensation levels. Finally, we analyzed directors’ gender diversity, ESG experience, digital experience, etc.
We found that the lack of incentives—due to high risk and low pay—makes it difficult to attract good leaders into this role. In order to help Chinese companies build better boards, a market system for independent directors needs to be cultivated.
The study reveals the following key insights:
- The overall distribution of independent directors on CSI 300 boards was barely larger than one third, the ratio required by regulations. This is much lower than the 79% ratio of independent directors on S&P 500 boards.
- Independent directors on Chinese boards have fewer corporate experiences (e.g., serving as CEO, president, or chair) than S&P 500 board directors do, but bring more academic experiences (e.g., working as engineers, economists, or within research institutes).
- Chinese independent directors hold significantly more master’s or doctoral degrees than S&P 500 board directors, but fewer MBA degrees.
- Compensation for CSI 300 independent directors is significantly lower than those for S&P 500 independent directors. (Analysis weighted compensation against GDP per capita in China and the USA respectively.)
- Independent directors serving on SOE boards are compensated better, bringing a wider range of backgrounds and experiences than POE directors.
Independent Directors on China’s Boards: More Business Experiences in Need
Authors
Grace Cheng leads Russell Reynolds Associates’ operations in China, is a senior member of the firm’s Board and CEO Advisory Partners. She is based in Beijing.
Chensong Li is a member of Russell Reynolds Associates’ China Accounts Knowledge team. He is based in Shanghai.
Stephen Langton leads Russell Reynolds Associates' Board and CEO Advisory Partners in the APAC region. He is based in Sydney.
Acknowledgement
Marieke van der Drift is a member of Russell Reynolds Associates' Industrial & Natural Resources consulting team. She is based in Singapore.
Justine Qin is a member of Russell Reynolds Associates' China Accounts Knowledge team. She is based in Beijing.
Joy Tan is a senior specialist of Russell Reynolds Associates' Insight & Analysis team. She is based in New York.
References
Data source: S&P Global Market Intelligence is the source of data but not the source of the analysis in this article
Rules for Independent Directors of Listed Companies (2022)
Opinions of the State Council on Further Improving the Quality of Listed Companies (2020)
The Corporate Law (2018, the forth amendment)
The 2022 amendment of the Corporate Law
Gao Minghua "China Listed Company Quality Index Report No.1 (2021)"
National Business Daily: The risk and return of independent directors of listed companies are asymmetric. Can high salary and liability insurance break the situation? (Decade 2021)
Zheng Zhigang: China's independent director system, from supervision to rule of law (Nov 2021)