A panoramic scan of the directors

China’s typical board composition: independent directors are the minority

Our analysis verified that independent directors occupy only a little over one third of seats on Chinese boards. Only 37.1% of the seats on CSI 300 boards are held by independent directors, far lower than the 78.7% ratio on S&P 500 boards. On average, a CSI 300 board consisted of 10 directors, of which four are independent. More than half of board directors (52.3%) were executive directors; the rest were non-independent non-executive directors.

CSI 300 vs S&P 500 Board Composition

Figure 1: CSI 300 vs S&P 500 Board Composition

_{Source: Russell Reynolds analysis of CSI 300 and S&P 500 board directors, CSI 300 companies: n = 2,504; S&P 500 companies: n = 5,917}

Among CSI 300 companies, POE and SOE boards have the similar ratio of independent directors as the CSI 300 boards—around 37%. However, there were more non-independent non-executive directors (16.7%) on SOE boards. This is because employee representatives and directors appointed by governmental entities (acting as the shareholder) also serve on SOE boards.

Chair independence at CSI 300 vs S&P 500 companies

Figure 3: Chair independence at CSI 300 vs S&P 500 companies

_{Source: Russell Reynolds analysis of CSI 300 and S&P 500 board directors, CSI 300, n = 264; S&P 500, n = 500}

According to our analysis, none of the CSI 300 boards had independent chairs, while 28% S&P 500 boards had an independent chair. This may not be surprising, as there are no explicit provisions on splitting the roles of CEO and chair in the current Corporate Law of China, nor are there regulatory guidelines for listed companies. In practice, CEOs and chairs are often the same person in Chinese companies.

Director characteristics breakdown

Both independent and non-independent directors on Chinese boards have less relevant professional experiences than those serving on S&P 500 boards. This applies to business experiences, educational backgrounds, and age distribution.

Our analysis on director biographies revealed that many independent directors on CSI 300 boards hold post-graduate degrees and worked at research institutes; however, few had accumulated real world business experiences as executives or other leadership roles in companies.

Chinese independent directors have less business oriented experiences

In terms of previous professional experiences, the proportion of independent directors in CSI 300 companies who have served as high-level executives (CEO, CFO, and president or general manager related positions) was significantly lower than that of S&P 500 companies.

Breakdown of board directors’ professional experiences (CSI 300, S&P 500)

Figure 4: Breakdown of board directors’ professional experiences

_{Source: Russell Reynolds analysis of CSI 300 and S&P 500 board directors: 1,657 "all directors" and 532 independent directors from CSI 300 companies; 5,888 "all directors" and 4,657 independent directors from S&P 500 companies}

Among “all directors” (including independent directors, non-independent non-executive directors, and executive directors) on CSI 300 boards, only around 10% have CEO or CFO experience. The ratios of independent directors are even smaller, at 9.2% and 6.0% respectively. By contrast, 57.8% of independent directors on S&P 500 boards have served as CEOs, and 21.1% as CFOs.

Additionally, only 36.3% of independent directors at Chinese companies have held senior management positions such as president, and 20.3% had experiences as chairman of other boards. This is significantly lower than the “all directors," with ratios of 48.3% and 35.7% respectively. American company directors have obvious advantages in these two aspects, with 92.4% and 44.8% respectively bringing senior management experience.

Chinese companies prefer academic independent directors

Breakdown of CSI 300 board directors’ expertise

Figure 6: Breakdown of CSI 300 board directors’ expertise

A detailed breakdown of the CSI 300 directors’ experiences, compared with S&P 500 ones, highlights key insights:

Preference for academic backgrounds: The majority (53.8%) of Chinese independent directors have academic backgrounds, bringing work experiences from universities, think tanks, or other research institutes. In contrast, 32.6% of independent directors on S&P 500 boards have academic backgrounds. This implies Chinese companies have more interest in hiring independent directors from academia.
Preference for social sciences expertise: 16.4% of independent directors on CSI 300 boards had engineer experiences, slightly less that the 18.5% ratio on S&P 500 boards. Meanwhile, 5.1% of independent directors on CSI 300 boards were economists (no one worked as anthropologist, sociologist, psychologist, or political scientists), more than those serving as social scientists on S&P 500 boards (less than 2%). A combination of these two categories implies that, compared with American companies, CSI 300 companies have a slight preference for independent directors with social sciences in their background.
Developing business founders: While 13.3% of S&P 500 directors are founders of their own business, only 4.1% of CSI 300 directors are founders. This is another demonstration of CSI 300 directors having fewer practical entrepreneurship experiences.
Emerging professional services experiences: Over a third (36.1%) of independent directors on CSI 300 boards have experiences in professional services, such as law firms, auditors, and consulting companies. It’s common to find chartered accountants and senior attorneys among independent directors in Chinese companies. About 40% of S&P 500 directors had professional services experiences.

Educational backgrounds: More on scholarship, less on business

Again, our analysis suggests that CSI 300 independent directors are more academically oriented (and less business oriented) than S&P 500 directors.

Educational backgrounds of board directors (CSI 300, S&P 500)

Figure 10: Educational backgrounds of board directors

_{Source: Russell Reynolds analysis of CSI 300 and S&P 500 board directors: 901 "all directors" and 321 independent directors from CSI 300 companies; 5,344 "all directors" and 4,321 independent directors from S&P 500 companies}

Directors serving on CSI 300 boards have more master’s and doctoral degrees than their S&P 500 counterparts, while fewer MBA degrees. This is particularly evident among independent directors. Almost half of independent directors on CSI 300 boards have a master’s degree or higher, and 34.0% of them hold doctor level degrees. In contrast, 21.4% of S&P 500 board directors have a master’s degree, and only 11.9% have a doctoral degree. This indicates that scholars seized a significant portion of independent seats on Chinese boards.

However, only 19.0% of independent directors on CSI 300 boards held MBA degrees, significantly lower than the 42.6% ratio on S&P 500 boards. This indicates Chinese directors, especially the independent ones, might lack professional knowledge on practical business management.

Age distributions: More independent directors in the retired group

Beyond professional experiences and educational backgrounds, our analysis also found that in China, independent director roles are less attractive to younger leaders looking to build their careers.

Age distribution of board directors

Figure 12: Age distribution of board directors

_{Source: Russell Reynolds analysis of CSI 300 and S&P 500 board directors: 2,231 "all directors" and 806 independent directors from CSI 300 companies; 5,725 "all directors" and 4,647 independent directors from S&P 500 companies}

The average age of CSI 300 "all directors" was 54.7, and that of independent directors was 57.7, younger than those in S&P 500 companies (the average ages of “all directors” and independent directors were 62.4 and 62.5). Chinese directors were younger than American ones, while their age distributions were unbalanced:

Unlike the age distribution of S&P 500 directors, which was close to a normal distribution, there is a marked dent in the distribution of CSI 300 directors. The dent happens after 60, coinciding with two factors. One is that the official retirement age in China is 60, and most executives follow this rule. The other is from the feature of China’s corporate governance. The directors appointed by major shareholders (governmental bodies in the case of SOEs) usually join the board by the age of 54, and would retire after two terms, each of three years.
There is a surge of board occupations from ages 55 to 60, especially of non-independent directors. This implies in Chinese companies, senior leaders were more likely to be selected as executives, before their retirement. In contrast, most directors on S&P 500 boards are between 60 to 70. As there is no sudden increase in the number of directors, it means age doesn’t provide obvious advantages when serving on boards.
In spite of the overall 37.1% ratio on CSI 300 boards, independent directors did not evenly distribute across every age group. They were not only minorities but also occupying less than one third of the seats in the age group younger than 60, but suddenly became the majority over age 60. In contrast, in the age distribution of directors of S&P 500 companies, independent directors make up the majority of all age groups.
It suggests that younger professionals in China were less likely to consider serving as independent directors as their “real job,” or a role that positively contributes to their career development.