Since the implementation of new independent director regulations in September 2023, 23 independent directors of A-share listed companies have been fined a total of 13.05 million yuan for failing to fulfill their duties diligently.
An analysis reveals that in cases where independent directors were penalized, some with accounting professional backgrounds received higher fines compared to those without such backgrounds, despite receiving identical compensation in listed companies' remuneration systems.
Experts interviewed on this matter indicate that higher penalties for accounting professional independent directors essentially reflect the mapping of their professional obligations to legal responsibilities. When penalizing accounting professional independent directors, regulatory authorities emphasize that as accounting professionals, they should maintain higher standards of care regarding listed companies' financial and accounting issues.
Experts suggest implementing differentiated compensation arrangements for independent directors with different professional backgrounds who bear different responsibilities and risks, to better incentivize diligent performance and maximize the effectiveness of the independent director system.
**Professional Background Influences Independent Director Penalties**
On September 4, 2023, the China Securities Regulatory Commission's "Administrative Measures for Independent Directors of Listed Companies" officially took effect.
Based on "Administrative Penalty Decisions" disclosed by listed companies (excluding companies that had been delisted at the time of disclosure), 23 independent directors from 13 listed companies have been penalized by regulatory authorities over the past two years for failing to diligently fulfill their independent director responsibilities. The total penalty amount reached 13.05 million yuan, with an average fine of 567,400 yuan per person.
Among these, 13 independent directors with accounting professional backgrounds averaged 576,900 yuan in fines, while 10 independent directors without accounting backgrounds averaged 555,000 yuan in fines.
"In cases where independent directors were penalized, most accounting professional independent directors received higher fines than those from other professional backgrounds," noted Zeng Bin, partner at Tianze (Shenzhen) Law Firm.
Taking the "Administrative Penalty Decision" disclosed by *ST Guangdao on September 13 as an example, former independent director and audit committee chairman An Xiumei and former independent director and audit committee member Wang Yang were identified as other responsible parties for the company's financial fraud, receiving fines of 600,000 yuan and 500,000 yuan respectively.
During statements, defenses, and hearings, An Xiumei claimed she lacked accounting professional background. However, the Shenzhen Securities Regulatory Bureau pointed out that this claim was inconsistent with the company's audit committee performance report and her independent director candidate statement. Considering other factors, An Xiumei's final penalty was 100,000 yuan higher than Wang Yang's.
Public information shows An Xiumei is a professor and doctoral supervisor at the School of Public Finance and Taxation, Central University of Finance and Economics. In her independent director candidate statement for Guangdao Digital, she claimed to "possess rich accounting professional knowledge and experience."
On August 23, *ST Zitian disclosed an "Administrative Penalty Decision," with the company found to have committed financial fraud. Four former independent directors - Zeng Liping, Xiong Yun, Zhong Xiaoyong, and Wang Su - were fined 1.2 million yuan, 800,000 yuan, 700,000 yuan, and 500,000 yuan respectively. The higher-fined Zeng Liping and Xiong Yun were identified as other directly responsible parties for false records in the company's 2022 annual report and 2023 semi-annual report, while the lower-fined Zhong Xiaoyong and Wang Su were identified as responsible parties for false records in the 2023 annual report.
The Fujian Securities Regulatory Bureau's penalty descriptions for Zeng Liping and Xiong Yun were identical, including failure to maintain necessary attention to abnormal business conditions, lack of substantial verification of questionable issues, and failure to perform duties diligently. The difference was that Zeng Liping served as "former independent director, audit committee member and convener," while Xiong Yun was "former independent director, audit committee member."
Another notable difference was that according to Zitian Technology's annual report, Zeng Liping is a certified public accountant and accountant who previously served as senior project manager at Xiamen branches of China Audit International and Tianjian Certified Public Accountants, while Xiong Yun's resume showed no such distinct accounting professional background, though he had served as financial director at other companies.
Both Zhong Xiaoyong and Wang Su lacked accounting professional backgrounds and served as audit committee members, with Zhong also serving as convener.
**Accounting Professional Independent Directors Bear Special Responsibilities**
"Accounting professional independent directors being 'specially treated' in regulatory accountability should be the result of responsibility quantification, not 'special treatment' based on professional background," emphasized Liu Zhigeng, a renowned tax and audit expert. "Higher penalties for accounting professional independent directors essentially reflect the mapping of their professional obligations to legal responsibilities."
"When regulatory authorities determine responsibilities, particularly when listed companies' violations relate to financial and accounting matters, accounting professional independent directors are often 'specially treated,'" said Yu Xingxi, former secretary-general of Beijing Listed Companies Association and member of the China Listed Companies Association Independent Director Committee. This special treatment has certain legal basis.
The "Administrative Measures for Independent Directors" stipulate that independent directors can be deemed without subjective fault if they can prove they fulfilled basic responsibilities and "before reviewing or signing information disclosure documents, despite seeking help from accounting, legal, and other professional services for specific issues outside their professional field, still failed to discover problems."
"One prerequisite for exemption is that it's 'outside their professional field' - if it falls within their professional field, they cannot be exempted," Yu further explained. Most cases where listed company independent directors are held accountable relate to financial and accounting matters, which fall within accounting professional independent directors' "professional field." "Therefore, it's 'natural' for accounting professional independent directors to be 'specially treated' in penalty cases."
In disclosed "Administrative Penalty Decisions," regulatory bureaus frequently emphasize independent directors' accounting backgrounds.
For example, in May 2024, the Guangdong Securities Regulatory Bureau issued an "Administrative Penalty Decision" to *ST Modern Avenue, explicitly stating: "Former independent director Chen Kaimin, as audit committee convener and accounting professional, should have maintained higher standards of care regarding inventory impairment matters, but failed to proactively investigate, obtain necessary materials and documents for decision-making, or prudently verify the accuracy of relevant inventory impairment amounts, failing to perform duties diligently."
"Indeed, compared to independent directors unfamiliar with finance and accounting, accounting professional independent directors have advantages in discovering financial report anomalies and questioning their causes, which is why the Administrative Measures emphasize the importance of accounting professional independent directors," Yu stated.
The measures clearly stipulate that independent directors must comprise at least one-third of board members and include at least one accounting professional. Listed companies must establish audit committees within their boards, with independent directors holding majority positions and accounting professional independent directors serving as conveners.
Liu Zhigeng noted that listed companies' financial and accounting information is crucial, so the measures highlight the necessity and professionalism of accounting professional independent directors while assigning them special responsibilities distinct from other professional backgrounds.
"If accounting professional independent directors fail to detect financial and accounting problems that general accounting professionals could identify, they should bear more responsibility than non-accounting professional independent directors," Yu said, while noting that administrative penalties and judicial practices should avoid being overly harsh toward accounting professional independent directors.
**Balancing Incentives and Constraints**
"I believe a key issue requiring attention is balancing incentives and constraints for independent directors," Zeng Bin argued. While accounting professional independent directors bear greater responsibilities and face higher penalty risks, they don't receive higher compensation than other professional independent directors, lacking corresponding incentives.
In the aforementioned cases, An Xiumei (fined 600,000 yuan) and Wang Yang (fined 500,000 yuan) both received 80,000 yuan in pre-tax compensation from Guangdao Digital in 2024; Zeng Liping (fined 1.2 million yuan) and Xiong Yun (fined 800,000 yuan) both received 180,000 yuan in pre-tax compensation from Zitian Technology in 2023.
"Future independent director system reforms could implement corresponding differentiated compensation arrangements, such as higher compensation for independent directors who leverage professional expertise or serve as audit committee chairs or conveners," Zeng suggested.
"Accounting professional independent directors bear greater responsibilities than non-accounting professional independent directors, and correspondingly have heavier workloads. Therefore, it's reasonable for listed companies to pay higher compensation to accounting professional independent directors," Yu agreed with Zeng's suggestion.
Other professionals believe independent director compensation "should result from market selection and negotiation," making institutional regulations difficult.
"Market selection requires institutional improvement as a prerequisite, while current market negotiation mechanisms have structural defects," Liu suggested future reforms should guide differentiated compensation pricing through "responsibility definition + procedural optimization." Market-based pricing mechanisms could be piloted for key positions like audit committee heads, while strengthening minority shareholders' supervisory rights over compensation plans.
"Since independent directors have supervisory and balancing responsibilities distinct from company employees, independent director compensation shouldn't be determined entirely through market competition," Yu believed. Legal regulations should provide principled provisions for independent director compensation. Industry self-regulatory organizations should formulate relevant guidelines specifying that independent director compensation comprises three parts: basic compensation; compensation for different positions in boards and specialized committees, reflecting different responsibilities and risks; and workload-related compensation, reflecting different performance inputs. Listed companies should establish their own independent director compensation systems within legal regulatory frameworks, based on industry self-regulatory guidelines and company circumstances.
"Independent director compensation levels should be moderate. Too low would be inconsistent with the high qualifications, significant investment, and certain risks independent directors must bear; too high might cause independent directors to lose independence due to concerns about recommenders' or appointers' favors or excessive concern about income," Yu concluded.
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