Independent Directors- A Misnomer

Authors

  • Amrita Malik

Keywords:

independent directors,, corporate governance,, Companies Act 2013,, Scams,, SEBI Listing Agreement,, promoters.

Abstract

The announcement of the Clause 49 in SEBI Listing Agreement brought about the introduction and growth of the independent directors, which provided for the need for having an independent directors on the boards of the company and defined the term ‘independence’ as well as laid down their duties and responsibilities. Also the Companies Act 1956 was amended and there was introduction of Companies Act 2013 which brought along with it provisions relating to the Independent directors and provided for a wider perspective in terms of their independence.

The appointment of the independent directors on the board provides support as well as contributes in better corporate governance performance. They also play the role of balancing the interests of the various stakeholders and protect the interest of the company which helps in its growth. However in the recent time, the occurrence of scams and other such incidence have increased taking for example scams like Enron, World com, Satyam or for that matter the controversy between the Tata sons and Cyrus Mistry , or the Infosys board issue and other global scandals. These scams have questioned the ‘Independence’ of the independent directors and the role they play in ensuring good corporate governance. Concerns regarding their appointment, selection procedure, removal have cropped up taking into account the increasing number of resignations by them. .

Large number of companies are promoter driven and are being controlled by one person, on a close observation it is evident that he is the person who is responsible for the management and also the appointment and removal of the independent directors, and they instead of playing the role of the watchdog of the board they prefer to be ‘friends’ of the promoters.

All these issues have questioned the corporate culture, ethics, norms of business organisations, and if we look closely we will find that the core problem of the business world today is seen to be the failure of the corporate governance, which means that the Boards are failing to execute their responsibilities and duties properly, And that the term ‘independent’ seems to be a myth and a misnomer as these incidences clearly shows that there is no such thing as independence and that they are just dolls in the hands of the promoters. Thus there is an urgent need to relook at the role of the independent directors and analyse the emerging challenges and issues faced by them

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References

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https://www.sebi.gov.in/legal/regulations/may-2018/sebi-listing-obligations-and-disclosure-requirement-amendment-regulations-2018_38898.html

Section 2(47) of the Companies Act 2013

Section 149 of the Companies Act 2013

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Prime data base; https://economictimes.indiatimes.com/news/company/corporate-trends/independent-directors-head-for-exit-doors-on-compliance-stress/articleshow/60977881.cms

https://www.theweek.in/theweek/business/2018/04/14/increased-scrutiny-is-making-independent-directors-quit-their-jobs.html

https://www.businesstoday.in/opinion/columns/why-questions-being-raised-on-independence-of-independent-directors/story/252581.html

https://www.sebi.gov.in/legal/circulars/may-2018/circular-for-implementation-of-certain-recommendations-of-the-committee-on-corporate-governance-under-the-chairmanship-of-shri-uday-kotak_38905.html

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https://www.sebi.gov.in/legal/regulations/may-2018/sebi-listing-obligations-and-disclosure-requirement-amendment-regulations-2018_38898.html

Regulation 17(vi)

17A , newly inserted.

Regulation 19 (2A)

Regulation 17 (iv) (2A)

Regulation 20 (2A)

Regulation 24(J)

Regulation 25 (1)

Regulation 25(8)

Regulation 25 (10)

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Schedule 5 (j)

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Regulation 17 (i)

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Published

30-05-2018

How to Cite

Amrita Malik. (2018). Independent Directors- A Misnomer. Research Ambition: An International Multidisciplinary E-Journal, 3(I), 61–71. Retrieved from http://researchambition.com/RA/index.php/ra/article/view/78

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