In the complex world of corporate governance, Independent Directors are said to play the sentinel of fairness, integrity and accountability within the corporate realm. In a landscape that’s often fraught with setbacks, independent directors may be seen as linchpins, who ensure that the interests of all stakeholders are diligently protected, scrutinizing executive decisions, challenging potential conflicts of interest and championing ethical conduct.
So, what could be said of the evolving role of Independent Directors?
According to Anami Narayan Roy, an Independent Director across various companies, “When it comes to the governance of companies, it has been driven by regulation, however, market forces and instances of serious misgovernance in companies have contributed to this. Initially, there would have been some reluctance on the part of Independent Directors to take on this heavy burden of governance and compliance on their shoulders, particularly with regard to audit-related matters. Now, in large listed companies, audit committees are required to comprise only Independent Directors, which may not be the best solution. There is some merit in having non-independent directors on the audit committee as well, but the burden of compliance on the committee is increasing day by day”.
According to Cyril Shroff, Managing Partner at Cyril Amarchand Mangaldas, “The real test of where standards are applied is whether third-party funds are being used. In a listed company, there are a lot of public funds, including retail. But, even in unlisted companies, particularly startups approaching unicorn status and being eventually listed, the governance journey starts a lot earlier before the listing moment. In anticipation of being listed, there’s a lot of institutional money that has similar expectations in relation to governance… Strangely enough, recently, most of the scandals have been associated with unlisted companies. If you look a decade ago, incidents were said to occur at listed companies… The lens should be of third-party funds, not just whether one is listed or not… India is one of the few jurisdictions in the world that still has the promoter concept and a lot of the initial conversations were about potential independence from the promoter & checks and balances to ensure no conflicts of interest and to keep a watchful eye over the promoter. That conversation has evolved significantly. It’s no longer about a ‘them-vs-us’ mentality, it’s about responsible governance for all stakeholders”.
Roy remarks, “There are many times where the burden of regulation compliance is taken very lightly by management, by boards and by promoters… As soon as a statutory auditor has any misappropriation or financial accounting issue brought to their notice, they must notify the Chairperson of the Audit Committee within 2 days. And the Chairperson is supposed to respond to everything brought to their notice and categorically respond within 45 days and within 2 days, the statutory auditors are expected to bring the report to the Government of India. All of this put together is a huge ask of the Chairperson of the Audit Committee, putting a heavy burden of compliance on the management. Sure, compliance is needed, but the expectation of the management and the time requirement to respond is a huge ask. So, there needs to be a compliance culture created from top to bottom. And the Board needs to bring in a proper framework and create a dashboard of compliance and monitor compliance”.
Roy declares, “Promoters need to create an environment of total independence and autonomy for Independent Directors to perform. But, irrespective of that, Independent Directors have to take it upon themselves to understand that they have a role to play, irrespective of how it is looked upon by the other side and they need to have a greater involvement”.
“I think the position of the Independent Director is an uncomfortable place. It’s said that the true test of a Board is the Independent Director. If they’re too comfortable, there’s a problem. And we’re in a new era of Independent Directors 2.0”, quips Shroff.
Watch the full interaction here:
