The origin of independent directors should be
discussed from the ownership of company visà-vis
Management. The Board is a group of individuals
appointed by the owners of the company to run the
company in the interest of the stake holders. A
company is a combination of various stake holders
such as investors, employees, vendors, customers,
governments and society at large. The management
of the daily affairs of the company is given to
the Board of Directors.
The representatives on the Board
should run the affairs in a transparent manner to all its stakeholders.
This is the triggering point for independent behaviour of the people on
the Board for the common good. Globally, many times in the past, it has
been observed that the members of the Board have taken decisions
prejudicial to the interests of the stakeholders at large and ran the
corporations for the material benefits of the few. This called for
independent members on the Board in the process of adopting fair and
transparent business practices.
Meaning of Independent Director:
A Director who is free from the influence / guidance / control of another
person or environment and who is self-reliant for the judgment and
opinions he makes.
Who are Independent Directors?
1. The Inclusive
definition given to the
Independent Directors' in Indian scenario means,directors who:
Apart from receiving director's remuneration, do not have any other
material pecuniary relationship or transactions with:
The
Company
Promoters
or its management
Its
subsidiaries or affiliates
Here, the intension of the
Regulator is to protect the “Independence and Judgment” of the Independent
Directors’ on the Board of any Listed Company and ensure that the same is
not adversely affected by virtue of the above said relationship.
2. Independent Director has to be a non-executive member on the Board
3. The Nominee Directors appointed by the Institutions that have Invested
or Lent money to the Company deemed to be Independent Directors.
Applicability:
Appointment of Independent Directors is applicable to the Companies listed
on Stock Exchange.
Minimum number of Independent
Directors
Composition of the Board:
3 4 5 6 7 8 9 10 11 12
No of Independent Directors: 1 2 2 2 3 3 3 4 4 4
Qualifications
of Independent Directors:The
audit committee members should be financially literate and atleast one
should have financial or accounting management expertise.
Disqualifications to become
Independent Director:
1. Share Holder with 2% or more of Equity Stake in the company.
2. Partner of Legal or Audit or Consulting Firm, rendering professional
services to the company during the tenure of such appointment or has
rendered services any time in the past 3 years can not become Independent
Directors of such company.
3. Former Executive who left the company less than 3 Years ago.
4. Material Suppliers, Service Providers and the Customers of the company
are disqualified to become Independent Directors on the board of such
company.
5. Relative of a Promoter or Member holding Management position at the
Board Level or one level below the Board.
6. Executive Director
7. Senior Executive one level below an Executive Director of the company
8. Any person having materially significant relationship with the company
can not become Independent Director.
9. A person who has not completed the age of 21 Years as on the date of
appointment.
Closing remarks:
Can Regulatory policies ensure
independent behavior of Directors?
Independence is a matter of behaviour / attitude and not merely physical
attendance of the so called “Independent Directors” at the Board Meetings.
No amount of regulation can ensure how an “Independent Director” should
behave at the Board Meetings. Only a person, who respects his conscious
about his responsibilities, will always raise right questions at every
forum, whether or not he holds the independent status by definition.
The missing Links of Independence…
Today it is a matter of open debate as to what happens to the decisions
taken and implemented by the board subsequently found actually not
independent…Ultimately
it is the Intent of the
person at the helm of affairs
and not the rules
which bind him in being fair and
transparent of the transactions.
It is the primary duty of each such Independent Director to question from
“WITHIN” as to “HOW INDEPENDENT” they actually are…? And how much value
they add to the stake holders they represent!.
(Mr.Prasad can be
reached at
prasad@locusindia.com)
Reachout's News Bureau
July' 2009
