Independent Directors and Well Performing Boards - Pointers for Indian Companies.
26 Pages Posted: 14 Feb 2018
Date Written: February 5, 2018
The Companies Act, 2013 has envisaged independent directors as the pivot for improvements in corporate governance practices in Indian companies. Recent governance issues that surfaced in some leading company boards, however, belie that expectation. The current framework for independent directors suffers from two infirmities. Firstly, the disproportionate control that dominating shareholders have over the independent director election process ensures that independent directors would not act against the interest of the dominating shareholders who have appointed them in the first instance. For independent directors to be effective, a prime requirement is for the independent director election process to move out of the influence of dominating shareholders. Secondly, existing board processes, in India, are grossly inadequate to equip independent directors to exercise the kind of oversight required under the Companies Act. Board processes need to be re-designed to facilitate a continuous, two-way interaction between company management and independent directors. Additionally, the Board Agenda needs to increasingly focus on forward looking issues that are central to the survival and growth of the organization. While the recent recommendations of the Kotak Committee on Corporate Governance are a step in the right direction, they do not go far enough and, in that context, some global best practices are reviewed which, if adopted, may hold the key to ensure that independent directors, on company boards in India, are able to properly discharge the role envisaged for them under the Companies Act, 2013.
Keywords: Corporate Governance, Board Effectiveness, Dominant Shareholders, Independent Directors, India
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