- Independent directors play an important role in corporate governance by providing oversight of management and protecting minority shareholder interests. However, their independence can be undermined by how they are selected and potential liability. - Reforms are needed to ensure independent directors are truly independent, such as being appointed by minority shareholders and distinguishing their liability from executive directors. High-profile fraud cases have made many unwilling to take on the role of independent director due to reputation risks. Strengthening existing laws and commitments of independent directors could help curb management misconduct.

1. Role of Independent Directors under Companies Act Divya Raman Corporate Department Altacit Global Email: info@altacit.com Website: www.altacit.com

2. Report of the Kumar Mangalam Birla Committee on Corporate Governance Independent directors are directors who apart from receiving director’s remuneration do not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the judgment of the board may affect their independence of judgment.

3. Companies Act and Listing Agreement Independent Directors – not defined under Companies Act. Clause 49 of the Listing Agreement defines Independent Directors in the same way as defined by Kumar Mangalam Birla Committee.

4. Independent Directors under Listing Agreement Composition of the Board – Not less than 50% of the board to be non-executive directors – Independent Directors: If the chairman executive: – At least half of the board should comprise of independent directors

5. If Chairman non-executive: – At least one- third of the board should comprise of independent directors. Non-executive directors’ remuneration to be approved by shareholders Board meetings – to meet at least 4 times, with gap not exceeding 3 months. Minimum information for board meetings laid down.

7. Counterbalance managerial infirmities in the Company.

8. Ensure legal and ethical behavior of the Company.

9. Source of well conceived long term decisions for the Company.

11. Role of Independent Directors To improve corporate credibility and governance standards. Function as watchdog of the Company. Maintain balance in a Promoter dominated scenario. Play vital role in risk management.

13. Scrutinize management performance.

14. Satisfy them that financial information is accurate and ensure that robust risk management is in place.

17. Be objective in forming sound decisions relating to the Company and its business.

18. Be open minded, free and frank in expressing their opinions and at the same time be willing to engage in meaningful debates.

20. Be informed on laws and regulations influencing their functioning as directors.

22. No Age limit.

23. No specific qualification is required.

24. No right to interfere in day-to-day operations.

26. To ensure that the independent directors spend adequate time, they must be compensated well.

27. Independent Directors should not get any options.

28. Chairmen of the committees must be a rotating position.

30. ID should form the majority and chair the audit and remuneration committee.

31. Chairman of stakeholders committee should also be non-executive director.

33. N.K. Wahi v. Sekhar Singh and others (2007) 2 LJ 10 (SC) Saroj Kumar Poddar v. State (NCT) of Delhi and Anr. [2007] 137 Comp Cas 837, 842 (SC) Held: Specific averments have to be made against the accused Director.

34. Satyam Issue Serious Fraud Investigation Office (SFIO) has filed seven cases against eleven ex-directors (including IDs) of Satyam. Nearly 340 IDs have resigned from their post. Many people are now not advent to accept the post of ID and tarnish their reputation.

35. Conclusion There is no need to implement new laws; all we need to do is to renew existing laws. Independent directors may not be in a position to stop management fraud perpetrated at the highest level, but with high level of commitment and due diligence they should be able to identify signals that indicate that everything is not going right.

36. THANK YOU