Independent Directors in Asia: Theoretical Lessons and Practical Implications

Abstract

Independent director requirements have spread throughout Asia, generating diverse definitions, enforcement patterns and cadres of directors (Part I). Yet the proliferation itself, and some of its features, provide some support for convergence in corporate governance, especially in function rather than form. In particular, seemingly influenced by proposals from Australian reformers in the early 1990s, the definition of independence has departed from US and early UK roots by excluding (variously defined) substantial shareholders, except until recently Singapore. This fits with the historical reality of “blockholders” in Austral-Asian corporate governance, making a key corporate governance concern the tension between large and minority shareholders, rather than the traditional Anglo-American tension between dispersed shareholders and professional managers. Given the looser definition in Singapore, the function of independent directors there has extended to mediating disputes among family blockholders. This may also be found in India, for example, where enforcement has been problematic until recently (Part II). The comparative analysis further suggests that significant “legal transplants” are occurring, but with complex features and motivations (Part III). We find elements of Miller’s cost-saving transplants (as perhaps in Hong Kong), entrepreneurial transplants (recently in Japan), legitimacy-enhancing transplants (Singapore) or even sometimes externally-dictated transplants (Korea, after the Asian Financial Crisis). We also see elements of Frankenberg’s “IKEA” theory of legal transplants, whereby concepts are de-contextualised and stored in a global intellectual reservoir, and then taken out and reassembled – for better or worse – by the importing jurisdiction (Part III). Given these patterns, independent directors will probably continue to be the norm in Asian countries, notwithstanding growing academic critiques. It is also likely that the varieties of independent directors found among jurisdictions will not diminish significantly (Part IV).