The role of Independent Directors in company boards has now moved from the periphery to the centre stage. They are entrusted with lot of responsibilities and held accountable when a company fails, to the extent of getting penalized.
These points came to the fore at the three-day Directors Conclave held on a virtual platform on the topic “Role of Directors on Board in building and sustaining effective companies” which concluded on September 18, 2021. The conclave was jointly organized by the Coimbatore Management Association, The Auditors Association of Southern India and The Institute of Chartered Accountants of India, Coimbatore Branch.
On the concluding day, there was a Panel Discussion on the topic “Corporate Laws with Special Focus on Director’s responsibilities and Roles” which was chaired by T.S.Krishnamoorthy, Former Chief Election Commissioner. The other panelists were M.M.Chitale, Past President of ICAI, Vijaya Sampath, Advocate and K.S.Ravichandran, Independent Director.
Welcoming the delegates, CMA president Jayakumar Ramdass stated that there was a need to keep abreast of the changing laws to bring about better corporate governance. Krishnamoorthy said that the Companies Act stipulated too many rules and regulations that were also changed frequently. Hence, there was an imperative need to ensure stability in this aspect and this could be best done by the government. He said that the appointment of independent directors must be done rationally and logically.
In his opinion 50 per cent of directors were not independent as the term really implies. There was a tendency on the part of the government to interfere in their appointment in many of the Public sector boards. Mostly independent directors were those who were known to promoters. Now more professionalism is coming in such appointments after the new due diligence process has been introduced.
Chitale said that the independent directors ought to follow “dharma” in running the affairs of a company, keeping in mind the interests of various stakeholders. He suggested that any changes and amendments should be brought into force on the first day of the next quarter. Independent directors should devote adequate time to the companies and should not go by clock, he said.
Penal clause
Vijaya Sampath said that independent directors should exercise due diligence before joining a company. They should ask the right questions to ascertain the direction in which the company was heading. They should foresee the red flags and pre-empt them by taking suitable action.
She said that it was ridiculous to penalize the independent directors, like freezing their assets, for the lapses of a company. As far as remuneration was concerned, India was going the American way, with the disparity between the directors and the employees creating a yawning gap, unlike in Japan and Europe where the difference was very meagre. To a question on what are safeguards for an independent directors, she suggested that the company could provide them with a Cash less Insurance cover in the form of D & O Policy which will protect them from liability if they were not party to a decision. However it is important to express dissent and minute the same, if they feel that certain decisions are not in the interest of stake holders.
Ravichandran said that independent director post should not be viewed as position of status. They should fully understand the objectives of the promoters and the business driven aspects. He asserted that regulations and powers alone could never make a company board effective. Boards must become better Boards, and better boards must become the best Boards, he said.
R.Varadaraj, Vice President CMA who moderated the Panel Discussion, posed pertinent questions to the panelists to get deep insight into the Companies Act 2013. The programme co-ordinated by K. Ravi, Vice President CMA and Co-Chairman M. Ramji, was attended by various Company Directors and Professionals.