(Yicai Global) Nov. 22 -- A number of Chinese independent directors, or board members from outside the organization, have recently stepped down after five outside directors were found liable and heavily fined in China’s first securities class action lawsuit verdict against Kangmei Pharmaceutical. And they are becoming increasingly difficult to replace.

The risks outweigh the compensation, Securities Daily reported today, citing Xiong Junjie, head of Hunan Junjie Human Resources Consulting. “The candidates we contacted all turned us down, saying that they would be responsible for running businesses worth tens of millions of US dollars, while only earning a small allowance,” Xiong said. Their average yearly salary is circa CNY81,000 (USD12,690), according to financial data provider Wind.

Kangmei was found guilty last year of inflating its business revenue by CNY29.1 billion (USD4.5 billion) and its cash holdings by CNY88.6 billion between 2016 and 2018. Last May it was given the maximum penalty of CNY600,000 (USD94,000).

This was then followed by the country’s first securities class action lawsuit, filed by individual investors. A court in Guangzhou ruled in favor of the investors on Nov. 12, and together with the company’s former chair, five independent directors were held accountable for parts of the fine, with amounts ranging from CNY123 million (USD19.3 million) to CNY246 million. Four of them are professors at universities and are not high earners.

The Chinese stock market introduced the system of independent directors twenty years ago. As they are not part of management, they hold a valuable neutral viewpoint. However, these external directors are rarely held accountable for their decisions. Only three outside directors had been fined prior to the Kangmei case, with the maximum being CNY200,000 (USD31,000).

Editor: Kim Taylor