Varieties of Independent Directors in Asia A Taxonomy

Dan W. Puchniak & Kon Sik Kim

The American Independent Director

The American Independent Director (Ostensibly) Goes Global

The Assumption that all IDs are (American-style) IDs

Yesterday’s Asia

“Boards of directors are typically dominated by insiders and hardly have any outsider presence.”

S. Claessens and J. P. H. Fan (2002)

IDs in Asia have Risen Beyond Expectations

China: higher percentage of majority ID boards than UK/Australia Singapore: reported a 98% ID compliance rate—higher than UK

Korea: Majority ID board mandatory in large firms—stricter than EU India: 1/3 or 1/2 ID board mandatory if CEO/Chairman

Hong Kong: 1/3 ID board mandatory IDs embraced in Asia

Has Asia Embraced IDs More than the West?

Japan: Not long ago over half of TSE boards no IDs—but has recently changed

Taiwan: 1/3 boards no IDs—but this has changed In developing Asia IDs are now common

No end to the rise of IDs in Asia

Even Asia’s Outliers are Slowly Embracing IDs

Diversity & Complexity Revealed

Who are the IDs in Asia?

Three Conceptions of Form Thinnest, Thicker & Thickest

Characteristics Personal Characteristics Group Characteristics

US = Mostly corporate executives Asia = academics, government connected, family friends, lifetime employees and keiretsu

US = Whole board IDs except CEO Asia = Varies greatly among jurisdictions from majority to one or two

Position Nature of Board Position Legal Nature of Positon

US = one-tier board with committees Asia = many non-one-tier boards

US = mandatory Asia = optional/hybrid/mandatory

Object of Independence

American IDs are primarily designed to be independent from management

Asia’s IDs are generally designed to be independent from significant shareholders & management

What Do They Do?

Diversity in Functions Expected & Actual

Actual Functions General Specific

US = empirical evidence ambiguous Asia = empirical evidence ambiguous

South Korea = Ex-government officials used as clandestine government lobbyists

Japan = Previously reinforced keiretsu

Singapore = Trusted mediators in family firms & purely managerial monitors in GLCs

Expected Functions

US = managerial monitoring on behalf of dispersed shareholders

Asia = historically monitor controlling shareholders on behalf of minority shareholders (except in Japan and Singapore)

Civilian Asian jurisdictions = fix shortcomings of the supervisory board or its local equivalent

Japan = signal government’s effective management of financial crises (evidence this exists elsewhere, but often to a lesser extent)

Singapore = Signal ‘good’ corporate governance to international investors (evidence this exists elsewhere, but often to a lesser extent)

Shareholder structures

Legal origins of laws Types of Shareholders Functional substitutes

Political economy Cultural norms

Why have such Diverse Varieties of IDs Developed in Asia?

A Loose Taxonomy

No Single Concept of the Independent Director

Convergence and Persistence in Corporate Law and Governance Jeffrey Gordon

Boards, and The Directors Who Sit on Them Renee Adams

Thank You

Thank You

Thank You