Expect more independent directors to abandon ship

It has happened again. Another listed company has seen the resignations of all but one of its independent directors in tandem with the disappearance of its chairman.

The latest example is a mainland frozen food producer named First Natural Foods Holdings. Two days after Deutsche Bank sued the company for US$16 million for the early termination of an interest rate swap agreement, First Natural Foods said its executive chairman was missing and five of its seven directors and its company secretary had resigned. Operations have been left in limbo.

This is not the first time independent directors have disappointed shareholders. Having failed to locate problems in a company, block high-risk investments or make timely disclosures of them, they jump ship immediately when the time bomb goes off. As the economy continues to deteriorate, we are going to see more of this.

Our system has put high hopes on the 3,038 independent directors to protect the interests of minority shareholders. But other than a requirement in the listing rules that each firm should have at least three independent directors, we know little about how the system works.

Who are these independent directors? How did they get hooked up with the company? How much do they know about the company in order to do a proper job?

I asked some independent directors, investment bankers and executive directors these questions. Their answers offer little comfort.