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7/28/2019 Role of Independent Director Incorporate Governance
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Concept of Independent Director
Independent director means a director who is not
connected or associated with the company in any
manner and works onlyto safeguard the interest of
members who individually cannot look after their
interest.
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Genesis
The concept of Independent director has been
originated to drive the companies towardsinculcating the concept of corporate governance
in their management.
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What is CorporateGovernance???
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Corporate Governance is the application of best
management practices, compliance of law in true letter
and spirit and adherence to ethical standards for effective
management and distribution of wealth and discharge ofsocial responsibility for sustainable development of all
stakeholders.
-The Institute of Companies Secretaries of India
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Corporate Governance Framework
Output Input
= Wealth Created ?
Sustainability
Happiness andProsperity of all
Stakeholders
Reinvestment
Distribu-tion
Research and
DevelopmentHR Development
Infrastructure
Risk Management
SUPPLIERS
Adequate Returns
HUMAN ASSETS
Adequate
Remuneration
CUSTOMERS
Affordable Prices
PUBLIC
Payment of Taxes andPartnership in National
Development Projects
Wealth Creation Wealth Management Wealth Sharing
Enhanced
Capabilities
Best Management Practices are Vital Here Law and Ethics are VitalHere
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Stakeholders in Value Chain
SUPPLIERS CUSTOMERSHUMANRESOURCE
Supply Funds,Materials and Services
Value Addition andManagement ofResources
Give Opportunity to Co.to Satisfy their Needs
Adequate Returns forFunds, Material andServices Supplied
Adequate Salary andSecurity for leading aHappy Life
Best Quality Productsand Customer Care atMinimum Prices
ROLE OF STAKEHOLDERS
EXPECTATIONS OF STAKEHOLDERS
Potential Suppliers, HumanResources and Customers
Biological, Economic andCultural EnvironmentPUBLIC
PUBLIC EXPECTS PARTNERHIP FOR SUSTAINABLE DEVELOPMENT
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Satyam Vada Dharmam Chara- Taittariya Upanishad
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Forever speak thetruth and follow thedharma
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Truth :Disclosure of Actual State of Affairs(Transparency in operations and transactions)
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Dharma : Dharma is for the stability ofsociety, the maintenance of social order and thegeneral well-being and progress of humankind.
- Karna Parva of the Mahabharata. Verse-58 in Chapter 69
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Corporates are also expected to use their
Capacity, Knowledge and Resources
Maximisation of stakeholders value and well-being and progress ofhumankind
TOWARDS
THROUGHTransparency, accountability and truthful disclosure of state of
affairs
Dharma
Truth
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This is our own age old mantra of
Good Governance
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Companies that have followed these
principles ofCorporate Governance
have
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Consistentlyearned high returns,increased their net worth and
enhanced their shareholders wealth
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..and accomplished
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WINNING
EMPLOYEES GROWINGINVESTORS
DELIGHTED
CUSTOMERS
TRUSTED
SUPPLIERSSATISFIED
GOVERNMENT AND
REGULATORS
HAPPY
SOCIETY
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Who is
Independent Director???
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IndependentDirector
Absence ofPecuniaryRelationship
Absence of MaterialRelationship
One who hasIndependency of Judgment
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IndependentDirector
InterdependentDirectorVs.
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Not having any material pecuniary relationships or transactions with
the company, its promoters, its directors, its senior management or its
holding company, its subsidiaries and associates.
Not related to promoters or persons occupying management positions
at the board level or at one level below the board
Not been an executive of the company in the immediately preceding
three financial years
Definition of Independent DirectorClause 49 (1)(A)(iii) of Listing Agreement
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Definition of Independent Director
Clause 49 (1)(A)(iii) of Listing Agreement
Not associated with the statutory audit firm or the legal firm having
material association with the company.
Not a material supplier, service provider or customer or a lessor or
lessee of the company.
Not owning two percent or more of the block of voting shares
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Directorships Matrix
ExecutiveGroup
(Salaried)
PromoterGroup
IndependentGroup
Managing /
Whole TimeDirector
Director
Chairman Executive
Chairman
Executive
/Non-ExecutiveChairman
Non-ExecutiveChairman
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Position of Independent Director
ExecutiveDirector
Owner DirectorIndependent
Director
Board ofDirectors
Interest of Company
Interest ofShareholder
Interest ofStakeholders
Balancing of Interests
PrimaryDuty
EnhancedResponsibility
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Independency of Director
Concept & Reality
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Concept
Legal
Disinterested director
Unbiased decisions
Balancing of conflicting interests
Protection of shareholders interests
Protection of stakeholders interests
Protection of whistleblowers interests
Managerial
Bring expertise in the Board composition
Infusion of new ideas
Develop a system in the Board Culture
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Reality
Independent Director
DisinterestedDirector
UninterestedDirector
No Yes
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Compliance in Spirit Compliance in Letter
Disinterested Director
Expert in a particular
discipline
Uninterested Director
Friend or relative not
coming u/s 6 ofCompanies Act
Reality Appointment of IndependentDirector
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Reality Appointment of IndependentDirector
Compliance in Spirit Compliance in Letter
Knowledge about theCompanys business
Precedence to
knowledge over names
Capability to dissent
Not concerned with theCompanys business
Precedence to name
over knowledge
Yes- Man
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Reality Working of IndependentDirector
Compliance in Spirit Compliance in Letter
Provides independentassessment of businessdecisions.
Provides expertcomments on the subject
Acts as per the whims ofmanagement.
Silent observer at theBoard meetings.
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Compliance in Spirit Compliance in Letter
Informed decisions
Ensures unbiaseddecisions
Decision on selectiveinformation.
Independent statustakes a backseat.
Reality Working of Independent
Director
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Independent Director
Critical Issues
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Those who areeligible, haveno time.
Those who havetime, arenot eligible.
Ingredients of Independent Directors
IndependentEligible/
Expert
Sufficient
Time
Corporate
Governance
BUT
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Insufficient knowledge regarding the business
Reliance on Executive Director/CEO forinformation
Selective information sharing
Lack of understanding
Informed Decisions
Not possible
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No legal requirement for qualification ofIndependent Directorexcept for the member ofAudit Committee who shall be financial expert.
Quality & ingredients are subjectivephenomenon.
No independent appointment.
Capability & Capacity
MajorShareholders
ExecutiveDirectors
IndependentDirector
In 60% companies, Board consists of shareholders holding more than
50% stake.
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Unbalanced Risk & Reward Equation
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Compensation
Too less willdeter expertsfrom
undertakingresponsibility
Too high willloose
independence .
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Independent Director
Rights & Duties
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Rights & Authorities
Right to attend and vote in every Board
Meeting.
Right to be appointed on various committees.
Right to demand information on every
business matter.
Right to seek clarifications/justifications
Right to dissent.
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Duties & Responsibilities
Primary Duties Enhanced Responsibilities
Act in the best interests of the
company
Safeguard the interests of the
stakeholders
Attend Board Meetings and
participate in decisions
Avoid conflict situations
Not seek personal gains
Maintain confidentiality
Fiduciary duty
Discharge duties required in
specific committees of the Board
To compel directors to act in
accordance with the strict terms of
their mandate
To compel them to exercise care and
skill in carrying out their various
functions
To compel them to use their wide
discretionary powers in good faithand proper purpose, &
Finally, to compel them to act
loyally in advancing the interest of
their company.
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Independent Director
Corporate Issues &Regulator perspective
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Corporate Issues
Preference of Stakeholders interest above the
interest of Company. Forces disclosure of confidential information.
Interferes in Management Decisions.
Acts as Bloodhound dog.
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Regulator Perspective
Independence director has primary duty towards the
Company and enhanced responsibility towards
stakeholders.
Reduce conflict of interests of management.
Ensures protection of wider interest of Company and
stakeholders.
Ensures transparency of information.
Provides independent Assessment while evaluating
business decisions as an independent Business Advisor.
Acts as a watchdog.
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Independent Director in a JV
JV Company
Partner A Partner B
Interest ofPartner A
Interest ofPartner B
Interest ofCompany & Stakeholders
Reconciliationof Interest
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Corporate Governance at Infosys
Board Strength
15 Directors
7
Executive Directors
8
Independent
Directors
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And
Thats what makes
Infosys
A value driven organization
CRISILCRISIL GVC
Level 1
ICRACGR 1
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