Handbook for Independent Directors
— By | Aug 09, 2015 12:05 am
The book under review explores and analyses various dimensions of the role of Independent Directors who are considered as the pivot of corporate governance.
Kaushik Dutta is a partner of India Leadership Team of Price Waterhouse Coopers. He has worked with the Naresh Chandra Committee and is closely associated with a number of bodies in the area of corporate governance. He formed “Thought Arbitrage Research Institute” which is a Think Tank specialising in corporate performance, public policy and economics. He has authored two books.
The Chairman of the Committee on Corporate Audit and Governance — Naresh Chandra in a valuable ‘Foreword’ points out how the corporate governance landscape in India has seen a transformation in the duties and responsibilities of the Board of Directors and management since he submitted his epoch-making report on corporate governance.
The latest round of policy level changes in corporate governance installs a robust legal structure and framework to enable effective implementation. The Board of Directors functions more efficiently in a collegiate manner, when they work as a team striving to achieve a common goal in the long-term interests of stakeholders and reconciling conflicting interests of different constituents.
What is the role of the independent director? At the centre of the new paradigm of corporate governance and in line with global practice is the independent director, who by virtue of his knowledge, expertise and objectivity is expected to act as the custodian of public interest. He has to moderate the dominating presence of the owners, government directors or a multi-national company but not get swayed by expectations of individuals or groups who have no risk capital in the organization. He has a highly nuanced responsibility of striking a fair balance.
The volume under review critically analyses the challenges faced by the independent directors. It covers the gamut of duties and functions of this official right from his joining the Board to discharging his allotted task and evaluating the Board’s and Directors’ performance at the close of the year.
Corporate events in India have highlighted the focus on governance which was not noticed hitherto. The Government of India has enacted the Companies Act 2013 while the SEBI revised Clause 49 of the listing agreement. These two regulations have expanded the responsibilities and liabilities of independent directors making their task tougher. The “EY” India and the “Thought Arbitrage Research Institute” have together provided a comprehensive understanding of the evolving role of independent directors. They have based it on their interaction with such officials, both globally and in India, using case-studies which afforded practical insights.
Independent directors discharge their role both as strategic advisers to companies and their management and as monitors of management actions. Effectiveness in the twin roles impacts the efficacy of the Board, which is closely tied up with an understanding of the technical and intellectual requirements from the role as also the softer and behaviour pre-requisites.
The contributors to the book hail from different fields of expertise —lawyers, chartered accountants, PhD holders in corporate governance, company secretaries, researchers and professional editors.
The book is divided into two parts. The first part is on “Independent Directors” and has seven chapters dealing with the evolution of an independent director. We have a clear exposition of the legal processes in connection with the appointment of such officials, the exercise of their independence. The duties of directors are adumbrated — how and where they are likely to falter are analysed cogently. Business risks are covered at considerable length.
Part Two is devoted to Board committees and role of independent directors and has six chapters. There is an in-depth analysis of the differences between Board and Board committees and roles of various committees. The Audit Committee has been studied and the link between independent directors and such committees has been highlighted. A list of the relevant questions is given and this will ensure the effectiveness of the audit process. Audit committee members ought to be aware of the limitations of their knowledge about a company. Their action must strike the right balance between skepticism and blind faith.
The Companies Act has mandated a dedicated Nomination and Remuneration Committee which will be in charge of drawing a framework within which appointments of directors and senior management will be made. Remuneration policy is crucial for long-term growth and sustainability of a company.
Corporate social responsibility has acquired tremendous importance in successful discharge of a company’s social objectives. The vigilance mechanism has been thoroughly discussed. The final chapter is on “Guardians of Good Governance” and sums up all the attributes desirable in independent directors. Their role is to stay ahead, create a Gold Standard and constantly push the boundary of growth.
This book is an outstanding reference manual that serves as a guide for all present and prospective independent directors, helping them to uphold corporate morality. A must read book for all legal students, corporate executives, directors and policy makers.
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