Circular of the China Securities Regulatory Commission on the Issuance of the Guidelines for the Establishment of Independent Directors System by Listed Companies

Circular of the China Securities Regulatory Commission on the Issuance of the Guidelines for the Establishment of Independent Directors System by Listed Companies

Zheng Jian Fa [2001] No. 102

August 16, 2001

To all listed companies,

For the purposes of further improving the corporate governance and promoting the standardized operation of listed companies, the Guidelines for the Establishment of Independent Directors System by Listed Companies are formulated by CSRC and are hereby promulgated for implementation.

Appendix: Guidelines for the Establishment of Independent Directors System by Listed Companies

The following guiding opinions on the establishment of systems of independent outside directors (Independent Directors) by listed companies are put forward in order to further improve the corporate governance structures and promote the standardized operation of listed companies:

Article 1 Listed Companies Shall Establish Independent Director System
1. The term "Independent Director of a listed company" means a director who does not hold any position in the company other than director and who has no relationship with the listed company engaging him or its principal shareholders that could hinder his making independent and objective judgments.
2. An Independent Director has a fiduciary obligation and an obligation of diligence toward the listed company and all its shareholders. An Independent Director shall, pursuant to the requirements of the relevant laws and regulations, these Guiding Opinions and the company's articles of association, conscientiously perform his duties and responsibilities, safeguard the company's overall interests and, in particular, pay attention that the lawful rights and interests of small and medium shareholders are not prejudiced. An Independent Director shall perform his duties and responsibilities independently, without the interference of the principal shareholders or the persons in actual control of, or other entities or individuals that have a material interest in, the listed company. In principle, an Independent Director shall not simultaneously hold the position of Independent Director in more than five listed companies and he shall ensure that he has sufficient time and energy to effectively perform his duties and responsibilities as an Independent Director.
3. Each listed company in China shall amend its articles of association and engage suitable persons as Independent Directors in accordance with the requirements hereof. At least one of the Independent Directors shall be a professional accountant (the term "professional accountant" meaning a person with a senior title or qualifications as a certified public accountant). By 30 June 2002, at least two Independent Directors shall be included among the members of the board of directors and by 30 June 2003, at least one-third of the members of the board of directors shall be Independent Directors.
4. If an Independent Director fails to meet the conditions of independence or another circumstance arises that makes it inappropriate for him to perform his duties and responsibilities as an Independent Director, thereby causing the failure of the listed company to meet the requirements hereof concerning the number of Independent Directors, the listed company shall make up the number of Independent Directors in accordance with regulations.
5. Independent Directors and persons intending to assume positions as Independent Directors shall participate in training arranged by the China Securities Regulatory Commission (CSRC) and institutions authorized thereby in accordance with the requirements of the CSRC.

Article 2 An Independent Director Shall Have the Qualifications Required to Exercise His Functions And Powers As Such
A person holding the position of Independent Director shall fulfil the basic conditions set forth below:
1.
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