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BW Businessworld

Outsider & Company

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Any discussion on the role, liability and value of independent directors gets extremely heated very quickly. There are many cynics who say outright that there is nothing called a truly independent director, that promoters pack their boards with yes-men and friends, and call them independent directors. Other critics hold these directors add no real value to the functioning of the board because they are often clueless about the affairs of the company and do not care to find out more, provided they are paid their sitting fees on time.

Professional independent directors argue equally passionately about the value they add — provided the promoters and the executive management are prepared to listen. One independent director says he has compelled all the companies, on whose boards he sits, to adopt proper governance practices, including sharing information with independent directors in good time so that they contribute meaningfully to board resolutions.
Some directors hold the current version of the Company's Act responsible for many of the ills — it doesn't give independent directors enough teeth to do much good.

The new Companies Bill, which is likely to be tabled in Parliament by corporate affairs minister Murli Deora soon, has made the debate more contentious. Independent directors are up in arms at the wording of the clause defining the liability of independent directors. Others point to issues that have not been dealt with — even though the Bill could have taken tips from similar acts and regulations in countries such as the US and the UK.

Senior correspondent Anilesh S. Mahajan spent six months talking to dozens of senior and respected independent directors to understand the nuances of the contentious issues. He also spoke to company managements and promoters to understand their point of view. His conclusion: there are quite a few companies that take independent directors seriously and create conditions that help them function properly. But an overwhelming majority of companies is not truly interested. They get independent directors simply to comply with government rules. And then they take every step to make sure that the independent director is reduced to a mere rubber stamp for the management.

(This story was published in Businessworld Issue Dated 21-03-2011)