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One of the most shocking news about A shares in recent days is the verdict of the first-instance case of Kangmei Pharmaceutical Co., Ltd. in the first class-action lawsuit in A shares. The most concerned is that the five independent directors at the time were sentenced to bear a total of 369 million yuan in joint and several liability.
These five independent directors had an annual salary of no more than 100,000 yuan, and less than 50,000 yuan, but they had to be fined hundreds of millions of yuan for signing the Kangmei Pharmaceutical Report. One stone has stirred up waves. Some people say that the income of independent directors do not match their responsibilities, and there are also those who criticize independent directors for failing to protect the interests of small and medium-sized investors. The ripple effect was that the A-share market started to stir up the resignation of independent directors. On November 20, 5 companies announced the resignation of independent directors, so that the topic of “resignation of independent directors of listed companies” was sent to hot searches.
The author believes that although only the first-instance judgment of the court is announced at present, even if the second and final judgments may be revised, Kangmei Pharmaceutical, as the benchmark case of the first class-action lawsuit in A shares, must be the basic principle of fair punishment of the relevant persons responsible. Its greater significance is to arouse society’s attention to protecting the interests of small and medium investors, and it will act as a deterrent to those who violate laws and regulations.
Looking back to history, my country began to formally introduce the independent director system in 2001 through the “Guiding Opinions on Establishing an Independent Director System in Listed Companies” promulgated by the China Securities Regulatory Commission. Through the performance of independent directors, with the help of their professional capabilities, they can supervise listed companies and major shareholders. However, under the old securities law, although there was a precedent for independent directors to be punished, for these independent directors, the risks are controllable and the returns are not low. Why not? Independent directors have gradually become “vases” in many listed companies. Many investors complain about it. Most independent directors have only achieved “independence” for small and medium investors and “sensible” for major shareholders.
But after the implementation of the new securities law, this situation has gradually changed.On May 17 this year, the Guangdong Securities Regulatory Bureau announced aST Rongtai(Rights protection) administrative penalty decision. The three then independent directors were fined 500,000 yuan each, and one of the “old independent directors” who served for five years had an annual salary of only 60,000 yuan.
The five independent directors of Kangmei Pharmaceutical were convicted of joint and several liabilities of up to 369 million yuan this time, further demonstrating that the “no capital” transaction of being listed as independent directors of a listed company has gone forever. Looking through the resumes, four of the five independent directors are university professors. Even if they are not rich and wealthy, their social reputation and status will not be bad, but after Kangmei Pharmaceutical, it is very likely that the lifelong struggle will return to zero overnight. For them personally, it is naturally unwilling to eat; but for the A-share market, independent directors are no longer a low-risk and high-yield sideline for professionals such as law, colleges, and finance. The milestone events in the capital market process can even be said to lay the foundation for the long-term slow bull pattern of A shares.
The stock market is a barometer of the national economy. In the history of the A-share market, the characteristics of short and long bears are obvious, which does not completely match the resilience of China’s economy. After 2015, the market is even more structured, and the index has not had a long-term decent performance. The reasons for this situation are diverse, but the improper governance of listed companies and the low cost of illegal fraud by counterfeiters have led to lack of confidence in investors’ subconsciousness and thus “short-sightedness” in trading behavior is an important reason.
In 2020, Kangmei Pharmaceutical Co., Ltd. reported a daily limit on the day after the announcement of the administrative penalty by the China Securities Regulatory Commission, which is very magical in itself. In recent years, the concept of long-term value investment has gradually taken root in the hearts of the people, and the prerequisite for investors to insist on holding shares is the “sense of security” of trust in the market. In short, Kangmei Pharmaceutical’s independent director was heavily fined, which may be “unexpected” for individuals, but for the A-share market, it is a landmark event that builds investor confidence and promotes the long-term and healthy development of A-shares.
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