Collusion-proof Theory and Independent Directors System of China

The phenomenon of collusion gives rise to decrease in efficiency of economic organization and loss of social welfare. The collusion behavior between independent directors and managers seriously affects availability of operating independent director system and does harm to interests of middle-small shareholders. Based on collusion-proof theory’s researches inside and outside of China, reasons for collusion such as collusion conditions’ existence in Chinese corporations’ governance structure and absence of effective incentive and commitment mechanism during exerting independent directors system are assayed, and suggestions such as combination of “carrot” policy with “rod” policy, internal supervision with external supervision and cash incentive with equity incentive for precaution are expounded as well.