EMPOWERMENT OF INDEPENDENT DIRECTORS

This has reference to the news item published in “The Hindustan times” dated 9th July 2009, titled “New Bill to define company directors’ role”. It is heartening to know that the government has taken an initiative to provide protection to Independent Director’s by coming up with amendment to the companies act.

The independent director’s (ID’s) in the present scenario of corporate governance in India are being appointed by the promoters/ CEOs, who are very powerful in the corporate world and thus the likelihood of theirs (ID’s) being independence is very unlikely. The protection as being suggested will be very short lived and will not provide a long term solution to the problem. We have to look for an holistic solution to these issue and the IDs need to be “empowered” rather than being protected. I would call it as bill for “EMPOWEREMENT OF IDs” . IDs need to be empowered or their roles well redefined to have a say in the CEOs succession, rather than CEOs appointing the IDs.

It is also pertinent to note here that many of the IDs (high official from government/ public sector) are being appointed by many companies immediately just after they retire from the active service, which also raises questions on IDs independence. It is a fact , the service rules of government provides for a “cool off period” for these high profile government/ public sector employees, but hardly being implemented. One of the criterion for selection/ rejection for an IDs from this category should also form part of the qualification of the IDs for appointment.

Beside, the above it is a well known fact that Indian shareholders are not proactive or are not able to assert themselves in discharging their role. It these category of people who are the most sufferer, when the company like Satyam or their CEOs indulge in unlawful activities. Shareholder activism is hardly heard off in India, but for recent few cases. It is essential that Indian shareholder also need to be empowered to discharge their role in tandem so as to bring about good corporate governance.

Last but not the least, the “Whistle Blowing” need to be given much more priority.
The above article was Published in Live Mint on 10th July 2009 to read the full article Click Here.