General Office of the State Council, Opinions on the Reform of the Independent Director System of Listed Companies

Issued: April 7, 2023

Main contents: Independent directors shall pay particular attention to potential material conflicts of interest between the company and its controlling shareholder, de facto controller, directors and senior executives, focusing on key areas such as affiliated transactions, financial and accounting reports, appointment and removal of directors and senior executives, and remuneration in their supervision (Section Two(1)).

Independent directors shall account for at least one-third of the board of directors of a listed company and external directors (including independent directors) shall account for a majority of the board of directors of a state-controlled listed company. The board of directors of a listed company shall establish an audit committee, all of whose members shall be non-executive directors, with independent directors accounting for a majority thereof. The audit committee shall be responsible for reviewing the company's financial information and the disclosure thereof, monitoring and evaluating the internal and external auditing work and the company's internal controls, etc. Material matters, such as financial and accounting reports and the disclosure thereof, shall be submitted to the board of directors for consideration after prior approval by the audit committee. The establishment of a nomination committee and a remuneration and assessment committee, on which independent directors account for a majority, under the boards of directors of listed companies shall be gradually implemented. They shall be responsible for matters such as reviewing the appointment, removal and remuneration of directors and senior executives and making recommendations to the board of directors. A mechanism for special meetings attended solely by independent directors shall be established, and, before submission to the board of directors for consideration, matters containing potential material conflicts of interest, such as affiliated transactions, shall be approved in advance at special meetings of the independent directors. The requirements for the disclosure of information on the participation by independent directors in special committees of the board of directors and in special meetings shall be improved and transparency of the performance by independent directors of their duties shall be enhanced. The special functions and powers of independent directors shall be improved and the reasonable exercise of functions and powers of independent directors such as the independent engagement of intermediary firms and soliciting shareholders' rights shall be promoted so that the independent directors can better perform their supervisory duties. The mechanism for communication and exchange between independent directors and small and medium investors shall be improved (Section Two(2)).