INDEPENDENT DIRECTORS OF A COMPANY: THE NEED FOR AN INDIAN

MODEL

Saumya Srividya, PhD Scholar, Department of Law, Berhampur University, Bhanja Bihar,
Ganjam-760007,Odisha

Email: [email protected]

Abstract

The corporate governance jurisprudence in a developing country envisages different goals in

its policies which go much beyond simply profit making utilitarian initiatives of developed
countries. Transparency, accountability, proportionate representation are few of the good
governance practices adopted in countries having concentrated ownership structures.
Independent directors are non-executive directors who are appointed to the board of a
company to provide an objective and unbiased perspective on corporate decision-making.
They are expected to act in the best interests of all stakeholders, including shareholders,
employees, customers, and the wider community The role of independent directors has
become increasingly important in recent years, particularly in the wake of corporate scandals
and failures. Independent directors are expected to bring a diverse range of skills, experience,
and perspectives to the board, and to challenge management where necessary to ensure that
the best interests of all stakeholders are being served. However, the role of independent
directors is not without its challenges. They are expected to have a deep understanding of the
company's operations, financial performance, and strategic direction, while also maintaining
their independence and objectivity. They must also navigate complex relationships with other
board members, management, and shareholders, and must be able to balance the interests of
different stakeholders. The issues so far having been addressed by the Companies Act, 2013
was reduction in their liability, ensuring presence of independent director in the board as one-
third of the board quorum, provision for appointment of director by small shareholders,
provisioning for a data bank directory for independent directors etc. The article envisages to
examine the contextual irregularity of the institution of independent directors under the
Companies Act, 2013, through the lenses of protection of rights of minority shareholder, due
to lapse in insight into the Indian insider model of corporate governance.

1|Page
Keywords: Corporate Governance; Shareholder Activism; Minority shareholders;
Controlling Shareholders

INTRODUCTION

Corporate Governance has been a buzz word eversince The Companies Act,2013 has been
enforced. The Cambridge English Dictionary defines corporate governance 1 as the way in
which a company is managed by the people who are working at the highest level in it.
Corporate Governance, according to the Cadbury Committee (1992), is the “system by which
companies are directed and controlled.” However, there have been various definitions of
corporate governance, depending upon the understanding of the purpose and the objective of
the corporation. The definitions can be grouped into two broad categories, which differ in
approach. The first approach takes a narrow view of Corporate Governance laying stress on
the maximization of the shareholder’ share value. The second approach takes a broader view
of the purpose of the corporation and gives stress on promotion of the best interests of all
stakeholders, as opposed to the interests of only the shareholders. The stakeholders include
the shareholders and other legitimate claimants.

Corporate Governance functions on various principles and theories one of them being the
protection of interests of the shareholders. Shareholder Activism is an important realm of
Corporate Governance. The new Act of 2013 has brought in several mechanism of voting to
enable participation of shareholders. These transformative changes have been a
transformative move yet there are contextual irregularities existent in the Act which act as a
hindrance in paving way for a robust system of governance. The dominance of controlling
shareholders in most Indian companies operates to dampen the effects of shareholder
activism.

A well constituted corporate governance structure in a company provides credibility and

develops trust among the shareholders, which in turn helps in the market position and
performance of a company. The board of directors performs a crucial role in this aspect. But
as far as the executive directors are concerned, their main goal is to maximize the profits of
the company. The rights of the minority shareholders, who have no or very minimal
1
CAMBRIDGE ENGLISH DICTIONARY, 460, (10th ed. 1999).
2|Page
representation in the company is often sidelined as the decision making is so as to maximize
and the interests of the minority is not considered. The evidence for such is the majority of
cases filed in the Company Law Board(before 2013; currently known as NCLT) is of
oppression and mismanagement (Section 241, Companies Act, 2013). Here the duty of the
non-executive directors becomes pertinent, as they are independent of company’s day to day
affairs, have the duty to safeguard their rights by way of monitoring incidents of
maladministration, which poses as a loss to the shareholders, and use their power to stop
them.

India has been among the few countries to bring Independent Directors in line with its
Companies Act, 2013. Earlier before the 2013 Act was enforced, clause 49 of the Listing
agreement2 (SEBI Guidelines) provided for the mandatory provisioning, of the Independent
directors which has been added as a significant change in the new companies Act. The added
aspects of the new Act are one-third of the board of listed companies has to be made up of
independent directors3, addition of improvement on the term of independent directors (not
more than two successive five-year terms) which is highly promising for good corporate
governance.

INDEPENDENT DIRECTORS AND CORPORATE GOVERNANCE

The role of Independent directors in ensuring Corporate Governance is immense and

challenging. Independent directors have a crucial role to play in adding Shareholder value.
They do so by developing company strategy, both at a national and international level, by
enabling more effective management of risk and prevention of loss or fraud to secure rights
of shareholders. They have been aptly been referred as both the coach and the referee in the
board as they perform the dual role of advising and monitoring. They help in guiding strategy,
thinking, perception and understanding of risk. One of the most crucial aspect of their
functioning is not getting involved with the internal affairs of the company, which provides
credence and respect to their position.

To achieve the aspect of independence from the day to day affairs of the company and
maintain a proximity from the promoters and controlling shareholders in the company is
easier said than done. The models of ownership of the companies are a great contributor to
2
LODR Regulations, 2015
3
Companies Act, No. 13 of 2013, Section 149
3|Page
the determination of corporate governance mechanisms for interest protection of
shareholders. In Indian scenario, a majority of the top rated companies eg Tata, Birla,
Reliance are family owned and hence it becomes difficult for them to trust an outsider with
their business. So, they usually hire a person from their circle of contacts who will agree with
their decisions, thereby defeating the purpose for which such Independent Directors are
appointed.

The institution of Independent Directors has been drawn into concerned debates even after
the introduction of new stricter norms under the companies Act, 2013. Independence of
directors is a critical part of Corporate Governance mechanism. Indian Corporate Governance
models rely heavily on those in the United States of America and the United Kingdom from
the recommendations of Cadbury Committee 1992 of the United Kingdom and the Sarbanes-
Oxley Act of 2002 of the United States.

In order to study loopholes in the mechanism and functioning of an Independent Director, this
article throws light on the major theories of corporate governance, the problems they pose
and the models on which the mechanism of corporate governance is formulated.

MODELS OF CORPORATE GOVERNANCE

The problems posed by the corporate governance theories is There are two models of
corporate Governance models, the insider model and the outsider model. These models are
based on the ownership patterns of a company i.e dispersed ownership and clustered
ownership. For the purpose of this study, the models have been discussed keeping in focus
the models of The United States and United Kingdom and India, i.e. the country of origin of
Independent Directors and the subsequent adoption made by Indian Legislature.

The United States and the United Kingdom

The US and UK model follows the outsider model of corporate governance, the core features
of which are: “1) dispersed equity ownership with large institutional holdings; 2) the
recognized primacy of shareholder interests in the company law; 3) a strong emphasis on the
protection of minority investors in securities law and regulation; and 4) relatively strong
requirements for disclosure.”4

4
Umakanth Varottil, “Evolution And Effectiveness Of Independent Directors In Indian Corporate Governance”,
10, Hastings Business Law Journal, Vol. 6, No. 2, 2010,p 5
4|Page
The share ownership models of UK and US are usually not clustered. The pattern of
shareholding is dispersed and held by large institutions and not family controlled.. These
institutional shareholders donot exhibit interest in the internal matters of the company except
for their own financial investments. Due to the existence of diffused shareholding and the
separation of ownership and control, the primary effort of corporate law in these jurisdictions
is to curb the “agency costs arising from self-serving managerial conduct,” by acting as a
check on the activities of managers and by enhancing their accountability towards
shareholders.5

In these countries, shareholding is diffused and it is not common to find companies that have
a dominant or controlling shareholder.6 This pattern of holding has been agreed as an outsider
model of corporate governance. The primary agency rift is between the managers and share
holders. The egalitarian nature of the developed country has lower scope for concentrated
ownership models of development model.

India

India follows the insider model of corporate governance, which is characterized by cohesive
groups of “insiders” who have a closer and more long-term relationship with the company. 7
The listed companies also donot escape this identity. his is true even in the case of companies
that are listed on the stock exchanges. The member of the family are usually the contolling
shareholders with whom the maximum shares lie. The controlling word is often used in this
sense as they are able to have a dominant control in the decision making of the day to day
affairs. The rest of the shareholding is in diffused capacities by the public constituting
individuals and the institutional shareholders. The insiders (who are essentially the
controlling shareholders) are the single largest group of shareholders, with the rest of the
shareholding being diffused and held by institutions or individuals constituting the ‘public’.
The insiders typically have a controlling interest in the company and thereby possess the
ability to exercise dominant control over the company’s affairs. In such a situation the say of
the minority shareholders is so curbed that they are not able to outvote any decision of the
controlling shareholders.

5
Supra Note 4, at 6
6
Supra Note 4, at 6
7
Supra Note 4, at 7
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This capacity of control brings the dominant shareholders an exercise of right over the entire
board which they can appoint and dismiss them at their will. They can even appoint
themselves in the board or as managers in the senior managerial positions.

THEORIES OF CORPORATE GOVERNANCE

AGENCY THEORY

Agency theory is used to understand the relationship between the agents and principals. The
agents are expected to act according to the common will and interest of the company. The
common will of the company is represented through the Board of directors, who act as the
agents of the shareholders, who are the principals. The principal’s best interest is preserved
by the agent in their absence. Depending on the nature of representation and conflict of
interest that may arise, there are instances of the principal deferring from the best interest of
the agent. These disagreements and conflicting interest may arise setbacks to the business
efficiencies and profits. This is often referred as the principal-agent problem. The company in
its governing capacity ought to reduces these conflicts through better management
techniques. Understanding the mechanisms that create problems helps businesses develop
better corporate policy.

AGENCY PROBLEMS: STRUCTURE IN UNITED STATES, UNITED KINGDOM

AND INDIA.

The effort of corporate law is to “control conflicts of interest among corporate

constituencies.”8 These conflicts are referred to in economic literature as “agency problems.”
Corporate law and corporate governance literature define three generic agency problems. 9
The disagreement between the company's managers and the shareholders is the first agency
issue. Such conflict is prevalent primarily in jurisdictions where corporate shareholding is
dispersed. Due of difficulties with collective action, shareholders are unable to effectively
oversee managers' conduct. The second concerns the conflict between the minority
shareholders and the majority or controlling shareholders. The "majority-minority agency
problem," as this conflict is known, is most common in jurisdictions with concentrated

8
REINIER R. KRAAKMAN, ET AL.,“THE ANATOMY OF CORPORATE LAW: A COMPARATIVE AND FUNCTIONAL
APPROACH” (2004).
9
In Gen. Umakanth Varottil, “Evolution And Effectiveness Of Independent Directors In Indian Corporate
Governance”, 10, Hastings Business Law Journal, Vol. 6, No. 2, 2010.
6|Page
shareholding, where the interests of minority shareholders are greatly diluted. The conflict
between shareholders and management and other stakeholders (such as creditors, employees,
consumers, and the general public) is the third agency problem.10

ROLE OF ID

The agency problem has thrown light on the existing inadequacies in the various voices of the
companies. In light of the same the role of the Independent Director in a company is
determining. They have a dual role of managing competing interests of the shareholders and
the management.

"Watchdog" for Public Shareholders: The independent directors exercise vigilance on behalf
of minority shareholders in contexts such as potential self-dealing transactions involving the
controlling shareholder and the company, as well as minority freeze- out transactions
proposed by the controlling shareholder. In such cases they act as a protector of the interest of
the minority shareholders comprising of institutional buyers and indivudals. Even though the
director may not have the voting power to stop these types of activities, he or she has the
power to make public any wrongdoing, and while the controlling shareholder could remove
the director or take other retributive measures, such actions would likely cause unwanted
public scrutiny.11

Outside the purely transactional context, independent directors may also be well suited to
maintain standards of professionalism within the boardroom and promote adherence to best
practices of corporate governance. This additional type of monitoring provides public
shareholders with added confidence that the board and the company are not being run
informally and casually at the behest and solely for the interest of the controlling
shareholder.12

Strategic Advisor to the Controlling Shareholder: Independent directors may also be viewed
as strategic advisors who can provide their expertise and experience on business matters to
the firm's management or controlling shareholder. In this role they may serve to enhance firm

10
Id. at 8.
11
Vikramaditya Khanna; J. Shaun Mathew, “The Role of independent Directors in Controlled Firms in India”,41
(Preliminary Interview Evidencer, 22 Nat'l L. Sch. India Rev. 35 ,2010) found at heinonline.com. at 46
12
Id.
7|Page
value by helping the firm make better business decisions and by helping the firm tap into the
director's wealth of business and political connections.

ANALYSIS

On competing role of Independent Director: The roles of independent directors that are
discussed above are competing to each other and they have to maintain a very fine balance
between both of them. The role as an advisor to the management as well as a watchdog
protecting the interest of the minority shareholders are not easy to balance and often makes
them land in a controversial condition. Their supporting the minority shareholders may get
the management against them.

Further, the time needed to be a strategic advisor may differ considerably from that needed to
be a "watchdog". The latter likely requires more ongoing and consistent oversight, whereas
the former may require only more limited and discrete time commitments. Despite the
general perception in the public that independent directors ought to serve as watchdogs, it
would appear that the strategic advisory role may be more suited to the actual functioning of
boards, given that very few boards meet more than once every two months. Hence the
function of watchdog has been easily compromised with.

INSTANCES OF FAILURE OF THE INSTITUTION OF INDEPENDENT

DIRECTORS IN INDIA

Corporate history is replete with examples wherein this institution of independent directors
has failed. The provision under The Companies Act 1956 was imposition of a high liability
imposed upon the independent directors in case a fraud is discovered subsequently. This
resulted in a large scale scare amongst the existing independent directors. Post 2013, the
Companies Act, 2013 reduced the liability of these independent directors under its clauses
which inturn has posed new problems as the real issues of appointment of Independent
Directors at par with the Indian scenario looking into its typical agency problems has been
widely overlooked.

ROLE OF INDEPENDENT DIRECTORS: IN LIGHT OF SATYAM SCAM

The Satyam Computers scam is one of the biggest corporate frauds as of January 7, 2009,
wherein several independent directors resigned prior to the declaration about the company by

8|Page
the chairman B Ramalinga Raju as bankrupt. There were several manipulations in the
accounts and false statements in the financial statements wherein Rs. 5040 crores out of a
cash and bank balance of Rs. 5361 crores was fictitious, reducing the value of the companv to
almost zero.

There was a sudden lapse in the share price of the company by 71% followed by its delisting
by all the major stock exchanges. The news was shocking to the shareholders and other stake
holders given the high reputation of the company. It was surprising as to how the fraud and
manipulation of accounts for seven consecutive years could not be detected by the company's
accounts department, internal auditors, whistle-blowers, employees, statutory auditors, Audit
Committee of Independent Directors or the Board of Directors. It brought forth the credibility
of the internal controls, the effectiveness of the independent directors, Audit committees and
the role of regulator.

A Special Court in Hyderabad on 8th December, 2014 charged four Independent Directors of
the Company as liable. The court upheld the accusation by the Serious Fraud Investigation
Office, and charged them with misreporting in the Board Report and Director’s
Responsibility Statement, which, over the years, had been approved in various board and
committee meetings. The punishment inflicted on errant independent directors, apart from
financial penalties, was not to sit on Boards in the future.

ON ABSENCE OF INDEPENDENT DIRECTORS

In 2015, that is after 15 years of independent directors being introduced in the boards, 25 out
of 48 Public Sector Undertakings did not have an Independent Director in its board. The news
in the Economic times read, “When it comes to the composition of the board of directors,
most publicly traded state-run companies don’t seem to conform to listing rules. Out of the 45
such public sector units,13 have not even one independent director, raising questions on board
oversight mechanism and the independence of decision-making.

They included top names such as Coal India, State Bank of India, Punjab National Bank,
National Building & Construction Corp and GAIL, show data compiled by Delhi-based
Prime Database. The government and regulators have no moral authority to take action
against private sector companies for corporate governance violations," said JN Gupta, former
13
244/NCLT/MAH/2016; MANU/NC/0280/2017
9|Page
executive director of the Securities and Exchange Board of India. "PSUs have miserably
failed incorporate governance and nobody in the government seems to care. Almost all PSU
banks do not have a single independent director," he said.”14

This shows a very critical condition of Indian Corporate Governance mechanism. It is a

glaring example of the provision of independent directors not being adhered to in India. It
shakes the very foundation of the corporate governance mechanism.

In US, in two cases, Weinberger v. UOP Inc 15, and Unocal v. Mesa Pertoleum16, the Delaware
courts were very critical of the absence of an independent board exercising a monitoring
oversight, in these companies. The courts suggested in both the cases that a board with
majority of Independent Directors would have greatly resolved the inherent conflict of
interest in the company’s decision making process.

APPOINTMENT OF INDEPENT DIRECTORS: REAL SCENARIOS

An Independent Director should have no personal or economic relationships that could impair
his ability to act. The relevant ties are not only those with the company and its management,
but also those with the other directors; any significant relationship with any of these subjects
might in fact have an improper influence on an Independent member of the board. In addition
to identifying a number of specific types of connections that would normally endanger the
director's independence of judgment, the existing Independent Directors should affirmatively
determine that a candidate director has no other relationship that, regardless of its nature,
could have such an effect. This open-ended approach allows all ties to be taken into
consideration, including personal friendships and social links that might have a material
influence.

LIABILITY OF INDEPENDENT DIRECTOR: NIMESH KAMPANI EPISODE

The liability clauses of the Companies Act, 1956 that inflicted penalties upon the independent
directors despite not having the knowledge of the wrong actions taken by a promoter brought
out the risk involved in the post and promoted high insecurities among them.

14
https://economictimes.indiatimes.com/news/company/corporate-trends/out-of-45-psus-no-independent-
directors- in-28-including-coal-india-sbi-pnb-gail/articleshow/48459997.cms
15
475 A. 2d 701, 710 (Del. 1983).
16
493 a.2D 946 (Del. 1985).
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“Compounding the fears of Indian independent directors in 2009 was the experience of
NimeshKampani, one of India's leading investment bankers. Kampani, the billionaire founder
of the JM group of companies, served as an independent director on the board of Nagarjuna
Finance from 1998 to 1999. The promoters and executives of Nagarjuna were later charged
under the Andhra Pradesh Protection of Creditors Act for failing to repay depositors nearly
Rs. 100 crore (- US$20 million) during 2001-2002. Notably, the Andhra Pradesh law
provided for significant jail time as a punishment: where any financial establishment defaults
in the return of a deposit either in cash or kind, or defaults in the payment of interest, every
person responsible for the management of the affairs of the financial establishment including
the promoter, manager or member of the financial establishment shall be punished with up to
10 years' imprisonment and with up to Rs 100,000 fine.” 17

The Government in addition to charging the promoters of the company also charged the
independent director, Mr. Kampani who had resigned prior to discovery of the accusations.
He escaped arrest by fleeing to Dubai till the arrest was stayed in the court.

Observation: While many have deemed Satyam to be a "one-off" blemish with respect to
India's corporate governance, and while the Nimesh Kampani incident could be framed as
more politically motivated than reflective of a broader trend in liability of Indian independent
directors. Their worry that they could be put in jail, and beheld financially liable and have
their reputations tarnished for actions perpetuated without their knowledge by promoters,
many of these independent directors began resigning in big number.

From the date of Raju's confession through January 8, 2010, 935 of India's independent
directors left the boards of Indian companies, of which 619 departures were classified as
resignations. News reports citing the same database reported nearly 300 departures by late
May, indicating that the rate of departure hardly abated over the course of the year.18

These mass resignations highlight a significant problem for corporate India: the roles of
independent directors in Indian companies and their attendant liability risks are not well
understood in the legislative discourse.

17
Vikramaditya Khanna; J. Shaun Mathew, “The Role of independent Directors in Controlled Firms in India”,41,
Preliminary Interview Evidencer, 22 National Law School India Review 35 ,2010,
18
Reputation at Stake? 340 Independent Directors Quit in 2009, Business Standard, May 14, 2009, available at:
http://www.business-standard.com/india/news/reputation-atstake-340-independent-directors-quit-in-
2009/08/06/61615/ (last accessed 10th October, 2023).
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REMOVAL OF INDEPENDENT DIRECTORS: IN LIGHT OFCASE OF CYRUS
MYSTRY

The manner of removal of the independent director is just as any other director by a simple
majority which is easy to achieve as the controlling shareholders have a great influence on
the board. In the case of removal of Cyrus Mystry, the majority of independent directors
backed the oppressive management’s decision of removal of Mystry. The only director who
opposed the view of the management was himself removed by the Board by a simple
resolution. This shows that the independent directors in the company however qualified
cannot dare to raise their voices as they can be easily removed by the board like any other
director. This defeats the entire purpose for which the independent directors were appointed
in the first place. An approach to curb this absolute power with the board needs to taken. In
the case of Cyrus Investments Pvt. Ltd. And Ors. V. Tata Sons Ltd. And Ors.19

Removal of Cyrus Mistry as chairman was remvoed for raising issues of mismanagement. It
amounted to the majority shareholders suppressing the right of the minority to ask questions
about matters involving the company. The independent director who stood against the voting
resolution of Mistry was also removed. Mistry filed a case in the NCLT under oppression and
mismanagement.

Observation: The lacunae that these cases throw on the system of corporate governance in the
family-owned businesses in India is that the will of these majority shareholders is often
oppressive and arbitrary which in times may go against the public interest existing in the
form of the minority shareholdings in these companies. Any voice of disagreement to the
majority will is met with stern action and even goes to arbitrary removal of the independent
director who voted in favour of Cyrus Mistry for the oppressive conduct of the management
against him.

CONCLUSION

India has an unequal distribution of resources unlike the United States which has an
egalitarian society. The companies in the United States have a dispersed ownership of shares,
while in India it is majorly concentrated in few hands. India faces the majority-minority
agency problem while Unites States faces the problem of shareholder-manager agency
19
244/NCLT/MAH/2016; MANU/NC/0280/2017
12 | P a g e
problem. Hence the laws framed in United States concentrates on Benthamite utilitarianism,
wherein profit making is concentrated. Whereas in the scenario of a family-owned listed
company the majority shareholders who run the business can easily carry out an oppressive
management which can result in losses to the shareholding of the public and other
institutional shareholding held in a smaller percentage. The tussle for just governance is
therefore between majority and minority shareholders. The presence of the Independent
Directors in the board ensures that the oppressive corporate practices of these majority
shareholders are monitored. The absence of minority shareholder’s participation in the
process of selection of the independent directors poses a threat to their rights in the board.
The models of US and UK which have a equal representation of all shareholding in the board
hence donot concentrate on these aspects of appointment of Independent director which
requires them to look out for the rights of these minority shareholders in appointment of an
Independent Director of their choice.

The institution of independent directors in India has often been referred as a toothless tiger.
When chairman of Satyam Computers, publicly admitted to cooking the company's books
over several years, what shocked the investors the most was that none of the independent
directors could spot the discrepancies in the books of the company. The boardroom battles of
Cyrus Mystry, the appointment of BJP spokesperson Sambit Patra in a government company,
and the Coal India case where the public sector company went without an independent
director for more than ten months are just few examples of how mismanaged the corporate
governance is. And most recently, Infosys, which had been long considered the benchmark
for good corporate governance practices in India, has seen its board come under attack. After
these and more incidents like this, SEBI Chairman also expressed his views on the role of
Independent directors “Auditors' committee is not working and that the independent directors
are not independent.” This is a serious issue which is engaging the attention of SEBI.

Corporate governance is a mechanism to put a check on the will of the directors influenced
by promoters, who might go against the interest of the company inclusive of all its
shareholders. It calls for an inclusion of minority shareholders in order to make the entire
decision making process a more democratic one. The theories show that the managers are
assigned to take care of the shareholders wealth. And the interest of all the shareholders
should be taken into consideration. Utmost reliance on the board of director’s decision can

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prove fatal to the interest of these shareholders. The minority shareholders or the investors
might be the most affected parties in it. The shareholder’s interests can be taken care of only
if there is a neutral party to monitor the work of the executive directors.

To venture into the problem of real independence of independent directors is altogether

another field of analysis. But the inability to address an issue according to our ownership
model of corporates is certainly a legislative lapse. The management of directors who work in
the will of the majority shareholders in these companies. Keeping in view the concentrated
ownership structure of Indian companies, the following are the suggestions to bring the
institution of Independent Directors at par with the prevailing circumstances:

 Appointment of Lead Independent Director who looks into the matter of appointment
and removal of Independent directors in the company instead of the controlling
shareholders..
 Appointment: The current system of selecting independent directors is ineffective.
Directors often select people of their choice to comprise the board, which can lead to
conflicts of interest. To address this challenge, a compulsory databank of names of
independent directors should be created from where the independent directors can be
selected. This will ensure that independent directors are selected based on their
qualifications and experience rather than personal connections.
 Minority shareholders should be given more representation on the board, and their
views should be taken into account when making important decisions. This can be
effected by appointment of Independent Directors for minority shareholders
compulsorily.
 Information symmetry. A structured agenda and uniform MIS should be created so
that each director knows what and where to look at. This will result in better and
clearer understanding, thereby ensuring effective participation with better results and
less fear of going wrong.
 Capacity building and training of directors is also essential to ensure that directors
remain abreast of various developments and are adequately equipped to discharge
their duties with full involvement and understanding. A proper induction program at
the time of appointment of independent directors, continuing training programs, and

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 executive sessions are essential to ensure that directors remain up-to-date with various
developments.

By addressing these challenges, independent directors can play a more effective role in
corporate governance, safeguarding the interests of all stakeholders and promoting
sustainable growth. It is essential that the Indian government and regulatory bodies take these
suggestions into account and work towards creating a more conducive environment for
independent directors to operate in. Only then can we ensure that independent directors can
fulfill their role in promoting transparency, accountability, and good governance in Indian
companies.

References:

1.“Beyond Independent” Directors: A Functional Approach to Board Independence,” Harvard

Law Review, Vol.119, No.5, March, 2006.

2. Vikramaditya Khanna; J. Shaun Mathew, “The Role of independent Directors in Controlled

Firms in India”, Preliminary Interview Evidencer, 22 Nat'l L. Sch. India Rev. 35 ,2010.

3. Haslinda Abdullah & Benedict Valentine ,“Fundamental And Ethics Theories Of Corporate
Governance” , Middle Eastern Finance and Economics, Issue 4, 2009.

4. Umakanth Varottil, Evolution And Effectiveness Of Independent Directors In Indian

Corporate Governance, Hastings Business Law Journal, Vol. 6, No. 2, 2010. Available at
SSRN: https://ssrn.com/abstract=1548786

5. Harald Baum, ‘The Rise Of The Independent Director: A Historical And Comparative
Perspective, Cambridge University Press; Max Planck Private Law Research Paper No.
16/20, 2017. Available at SSRN: https://ssrn.com=2814978

6. Derek Higgs, Review Of The Role And Effectiveness Of Non-Executive Directors, Jan.
2003. Available at:http://www.berr.gov.uk/files/file23012.pdf

7. Financial Reporting Council, The Combined Code On Corporate Governance, (Jun. 2008).
Available At Http://Www.Frc.Org.Uk/Corporate/Combinedcode.Cfm

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8. Dan W. Puchniak, KonSik Kim, “Varieties of Independent Directors in Asia: A Taxonomy”
August, 2017. Available at: http://law.nus.edu.sg/wps/pdfs/001_2017_Puchniak-Kim
%20KonSik.pdf

9. Ravi Thakur, “Post Satyam Case: A Study of Impact on Role of Independent Directors”.
Available at: http://www.internationalseminar.org/XIII_AIS/TS%201%20(B)/15.%20Mr.
%20Ravi%2 0Thakur.pdf

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