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Many countries require listed companies to have independent directors sitting on their boards. These directors have no ties to the company, are not on the executive team, and do not participate in daily operations, ensuring ethical and effective management while balancing stakeholder interests. Unfortunately, it is not uncommon for these overseers to be besieged by multiple issues that prevent them from performing their roles.
Among many possible reasons, controlling shareholders often immensely influence the nomination of independent directors, who receive meagre compensations, giving them less motivation to exert monitoring efforts. A lack of expertise could also be the cause, as many independent directors are industry outsiders with little business experience. Regardless, their oversight function is vital in ensuring corporate governance.
George Yang, Professor of the School of Accountancy at the Chinese University of Hong Kong (CUHK) Business School, tries to address this issue. He investigates the effect of China’s “sunshine enforcement”, where the regulators use public enforcement mechanisms to encourage independent directors to step up their game. The concept is based on increasing transparency and public visibility in enforcing laws to improve accountability and compliance.
