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Independent Directors

Mrinali Kaul
Mrinali Kaul

Gave this presentation at the 10th All India Conference of Student Company Secretaries and received the Best Speaker Award for the same.

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INDEPENDENT DIRECTORS- Are they really independent?
Brief History U.S.A U.K. Bullock Committee on Industrial Democracy Cadbury Committee INDIA Kumar Mangalam Birla Committee Narayana Murthy Committee J.J. Irani Report
Role of Independent Directors Towards shareholders and stakeholders Towards the Board of Directors Towards committee membership Towards improved corporate governance
Independence of Directors- Meaning The expression independent director shall mean non-executive director of the company who: a. apart from receiving directors remuneration, does not have, in the opinion of the board, any material pecuniary relationships or transactions with the company, its promoters, its senior management or its holding company, its subsidiaries and associated companies which in the judgment of the board may affect independence of judgment of the director; b. is not related to promoters or management at the board level or at one level below the board; c. has not been an executive of the company in the immediately preceding three financial years; d. is not a partner or an executive of the statutory audit firm or the internal audit firm that is associated with the company, and has not been a partner or an executive of any such firm for the last three years. This will also apply to legal firm(s) and consulting firm(s) that have a material association with the entity. e. is not, in the opinion of the board, a material supplier, service provider or customer of the company, which in the judgment of the board may affect independence of judgment of the director". This should include lessor-lessee type relationships also; and f. is not a substantial shareholder of the company, i.e. owning two percent or more of the block of voting shares.
Loss of Independence Selection of Independent Directors by the management: PARADOXICAL SITUATION Recent study by Prime Database along with BSE: 75% of all Independent Directors are home members
Compensation Factor Commission for Independent Directors Vested Interest In Company Loss of Independence Performance of Company
Independent Directors: Mere Rubber-Stamp? Minimal role in day-to-day administration of company: Needs to be Enhanced Independent Director appointed and paid at promoters discretion Independent Directors biased towards executive management and carry out passive role
The Road Ahead: Post Satyam Fiasco Independent Directors need to be more responsible. Concept of Institution of Directors needs to be looked into. Tenure of independent directors should be limited. Number of directorships need to be reduced. Ceiling on an independent directors income from a single directorship.
Corporate Governance: Case of Letter over Spirit of Law? Study by Prime Database points out that more than 3,000 people who were on the boards of various companies on January 1, 2006 were re-designated as independent directors to comply with the SEBI stipulation that a certain proportion of the board should consist of independent directors.
Conclusion Time to have a relook at the present corporate governance structure. Corporate India has to rise above the letter of the law and get into adherence of the spirit of the law.
THANK YOU MRINALI KAUL III BSL.LLB, ILS Law College, Pune [email_address]

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Independent Directors

  • 1. INDEPENDENT DIRECTORS- Are they really independent?
  • 2. Brief History U.S.A U.K. Bullock Committee on Industrial Democracy Cadbury Committee INDIA Kumar Mangalam Birla Committee Narayana Murthy Committee J.J. Irani Report
  • 3. Role of Independent Directors Towards shareholders and stakeholders Towards the Board of Directors Towards committee membership Towards improved corporate governance
  • 4. Independence of Directors- Meaning The expression independent director shall mean non-executive director of the company who: a. apart from receiving directors remuneration, does not have, in the opinion of the board, any material pecuniary relationships or transactions with the company, its promoters, its senior management or its holding company, its subsidiaries and associated companies which in the judgment of the board may affect independence of judgment of the director; b. is not related to promoters or management at the board level or at one level below the board; c. has not been an executive of the company in the immediately preceding three financial years; d. is not a partner or an executive of the statutory audit firm or the internal audit firm that is associated with the company, and has not been a partner or an executive of any such firm for the last three years. This will also apply to legal firm(s) and consulting firm(s) that have a material association with the entity. e. is not, in the opinion of the board, a material supplier, service provider or customer of the company, which in the judgment of the board may affect independence of judgment of the director". This should include lessor-lessee type relationships also; and f. is not a substantial shareholder of the company, i.e. owning two percent or more of the block of voting shares.
  • 5. Loss of Independence Selection of Independent Directors by the management: PARADOXICAL SITUATION Recent study by Prime Database along with BSE: 75% of all Independent Directors are home members
  • 6. Compensation Factor Commission for Independent Directors Vested Interest In Company Loss of Independence Performance of Company
  • 7. Independent Directors: Mere Rubber-Stamp? Minimal role in day-to-day administration of company: Needs to be Enhanced Independent Director appointed and paid at promoters discretion Independent Directors biased towards executive management and carry out passive role
  • 8. The Road Ahead: Post Satyam Fiasco Independent Directors need to be more responsible. Concept of Institution of Directors needs to be looked into. Tenure of independent directors should be limited. Number of directorships need to be reduced. Ceiling on an independent directors income from a single directorship.
  • 9. Corporate Governance: Case of Letter over Spirit of Law? Study by Prime Database points out that more than 3,000 people who were on the boards of various companies on January 1, 2006 were re-designated as independent directors to comply with the SEBI stipulation that a certain proportion of the board should consist of independent directors.
  • 10. Conclusion Time to have a relook at the present corporate governance structure. Corporate India has to rise above the letter of the law and get into adherence of the spirit of the law.
  • 11. THANK YOU MRINALI KAUL III BSL.LLB, ILS Law College, Pune [email_address]

Editor's Notes

  1. Mention clause 49, listing agreement at the end as current scenario
  2. Corporate governance can not stop frauds. Satyam got the Golden Peacock award for their corporate governance. I don't think the independent directors or the board can stop a fraud