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Why do promoters need Independent Directors?

Why do promoters need Independent Directors?

By Neha Shah
Calendar

Jun 10 th 2021

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With an intention to reinforce the role of independent directors, market regulator SEBI recently recommended a few changes in the rules dealing with the selection, removal, remuneration as well as the role of independent directors as a part of Audit Committee.

The concept of Independent Directors originally emerged from the need to have a certain number of directors on the Board who would think and act independently to bring about a healthy balance between the interests of the promoters and other stakeholders including minority and small shareholders. Independent Directors are considered as a vital component in the overall Corporate Governance framework in Indian boardrooms. SEBI and MCA have over the years left no stone unturned to strengthen the institution of Independent Directors by recommending various committees and introducing a separate Code of Conduct to govern the role of independent directors in the Company. However, despite taking various serious measures, concerns around the efficacy of independent directors as a part of corporate governance framework still continues.Data reveals that the present system of appointment of independent directors is extremely influenced by the promoters which ultimately seems to hamper the essence of independence of thinking and decision-making capabilities of independent directors. The entire concept of appointment of independent director goes for a toss if the decisions on key issues are influenced by promoters or other directors of the Company. However, considering the other side of the coin, promoters need independent directors on the Board. There have been multiple examples in Indian boardrooms wherein independent directors have given their viewpoints with complete independence irrespective of what the promoter or director thinks.Certainly, at this point in time, companies and its promoters must rethink on the existence of independent directors on Board as well as their roles and responsibilities. It is time how the promoters can change their mindset and analyse in detail the important check boxes before onboarding independent directors which will help them make a fair decision and gain stakeholder trust.

Some of these check points could be:

Independent Directors as a Think Tank – Independent directors are considered to be the custodian of corporate governance in organizations and their appointment as vibrant think tanks can add immense value to the Board in the long run;

Independence to ask questions to the Management – Independent directors are conceptually appointed to put forth independent view point on board matters of the Company. If they are fearless to voice out their concerns and seek clarifications from the management, the display of values like integrity and fairness helps stakeholders as well as promoters build trust on independent directors;Industry connects – We say ‘your network is your net worth’. Similar principle applies to independent directors and this is the prime duty of any promoter to background check the connects of independent directors and what their connects could bring to the table as a value addition;

Wealth of experience – In addition to the legal requirements stated under Companies Act, 2013, Schedule IV and SEBI LODR, experience is something that completely varies from a person to person. Therefore, counting on rich experiences of independent directors and analysing its usage in current board practices is one of the crucial checkpoints that every promoter must do before onboarding independent directors;

Act more than merely watchdogs – Though independent directors are appointed to maintain high standards of governance in organizations, it must be understood by promoters that their role is way beyond than merely becoming a watchdog and raising red flags. A proactive character trait to bring in and introduce innovative change in the company culture is something that promoters should consider while onboarding independent directors.Aforementioned are some points that could help promoters and companies realise the worth of need of independent directors and how fairly companies can appoint independent directors for stakeholders’ interest.

Role of (MentorMyBoard) MMB: MMB is on a mission to groom more than 20,000 professionals during the year and is aggressively working towards bringing more aspiring independent directors to leadership roles by empowering them with right skillsets required for Board positions. MMB is offering a platform that prepares Directors towards ethical leadership, robust governance practices, borderless compliance and insights that in turn make competitive Boards potentially prevalent. MMB is all set to empower Directors and make sustainable Boards in India.Avail MMB Membership now and be a part of the premium Director Community. Convey your story of directorship and become a part of Board Leadership in the country.To be a part of our ecosystem and get professional handholding & mentoring, please click https://www.mentormyboard.com/membership and avail unlimited benefits for the year!

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Category

  • All
  • Boardrooms
  • BOARDROOMS
  • Independent Directors
  • Role of Board
  • Mindset Shifts of Boards
  • Independent Directors and Promoters
  • Sustainability / ESG
  • business implication
  • employee exits
  • COMMITTEE MEETINGS
  • Union Budget
  • Independent Director
  • Grow with Governance
  • Grow with Governance
  • INDEPENDENT DIRECTOR
  • Entrepreneurial Board
  • ESG & ITS IMPORTANCE
  • leadership coaching
  • Change Management
  • Advisory Boards
  • Boards
  • Boardroom
  • Brand Yourself as a Leader of the Company
  • Kindness
  • Are you hesitant to speak in the Boardroom!
  • Governance & ESG
  • Directors
  • Independent Directors
  • Corporate Governance
  • Leader development
  • Gratitude, Purpose
  • decision making
  • Systematic Investment Plans in Emotional Intelligence
  • Corporate Governance
  • The Board’s Role in ESG!
  • Balance Boards
  • Agility and Compassion
  • Governance and Board
  • Diversity and Inclusion
  • Directors,Promoter Directors
  • Board Members, Directors and Independent Directors
  • Board and Senior Management
  • New Directors
  • Cyber Insurance
  • Salary Increment
  • Economy Growth
  • Human Resources
  • Generating Wealth Beyond Money
  • Agile Mindset for Leadership
  • Aspiring Independent Directors
  • Board Leadership
  • Corporate Governance & Women on Boards
  • BOARD MEMBER
  • SME
  • WOMEN DIRECTOR
  • BOARD MEMBERS

Archive

  • 2021
    • April (3)
      • Will you drive your vehicle without a dashboard?
      • Are you making SIPs to improve your Emotional Intelligence
      • Corporate Governance needs a Moral Compass – Ethics in Indian Boardrooms!
    • August (9)
      • Grow with Governance: ESG is the umbrella for CSR, says Vedanta's Roma Balwani
      • Grow with Governance: PadUp Ventures' Rajat Jain Demystifies Correlation of Governance and Economic Growth
      • Grow with Governance: Family governance impacts the culture of a family-run business, says Equations Advisors' Mita Dixit
      • Entrepreneurial Board
      • NEW REGULATORY PROVISIONS RELATED TO INDEPENDENT DIRECTORS
      • ESG & ITS IMPORTANCE FROM THE POINT OF VIEW OF BOARD MEETING
      • Start early, don't wait till retirement to become an Independent Director, says Increate Value Advisors' Milind Sarwate
      • The winding road of leadership coaching in the post-pandemic era
      • Challenges of Organizational Culture Change
    • February (4)
      • Re-examination of Purpose by the Boards in Post -Pandemic Era
      • What Makes Great Boards Great! Performance Evaluation by Boards and Role of Independent Directors
      • Promoter Director – Time to become Custodian of Governance!
      • Diversity and Inclusion – The Board Perspective!
    • January (2)
      • New Directors - Have you done your due diligence
      • Cyber Security Insurance and Boards
    • July (7)
      • Why Advisory Boards Are Important for Indian Business Corporates?
      • Grow with Governance: ESG essential to repair the damage economic activities caused to the earth, says CA Shailesh Haribhakti
      • Top 10 areas to contribute in Boards as Independent Directors
      • Top 10 Questions to Ask in Boardrooms!
      • Essential HOWs of Boardroom!
      • Kindness is key
      • How to Brand Yourself as a Leader of the Company?
    • June (6)
      • Leading from the Boardroom
      • Are you hesitant to speak in the Boardroom!
      • The Neem Project a Leadership case study
      • Directors Liability in India
      • Why do promoters need Independent Directors?
      • Corporate Governance Deviation – Infosys Case Study
    • March (4)
      • Board Refreshment: Finding the Right Balance for your Board!
      • HR Governance and Board – How Important Is It?
      • Agility and Compassion: Two Pillars for Boards in the Post Pandemic Era!
      • Modernizing Governance: The Board’s Role in ESG!
    • May (3)
      • Restructuring appraisals in 2021 – Gratitude, Purpose & Meritocracy
      • How do you make your personal Brand?
      • Leadership Coaching: How does it help Leaders
    • October (2)
      • Are Independent Director’s required on the Board?
      • 'Ethics & Governance' lesson should start from school, says Federal Bank's Independent Director, Sankarshan Basu
    • September (3)
      • Grow with Governance: As an Independent Director ensure your voice is heard, says Apurva Purohit
      • Grow with Governance: Push for ESG agenda; pool CSR funds to maximise impact, says Ranganath NK, former MD of Grundfos Pumps
      • Grow with Governance: Boards should prepare companies for different risks, says National Insurance Academy's G Srinivasan
  • 2020
    • August (4)
      • WOMEN DIRECTOR-An Emerge
      • ARE YOUR BOARD MEMBERS SAVVY WITH FINANCIAL TERMS AND EXCEL IN FINANCIAL LITERACY QUOTIENT AS PER COMPANIES ACT 2013 MANDATES.
      • BOARD MEMBER SELECTION- A TASK OF PERFECTION
      • SME IPO – AN OPPORTUNITY TO CAPITALIZE YOUR BUSINESS
    • December (3)
      • Good or bad, Salary Increments always cause a heartburn among employees
      • Is Economic Progress Enough?
      • Emotional Intelligence
    • November (3)
      • Generating Wealth Beyond Money
      • "Agile Mindset for Leadership"
      • Tips for Aspiring Independent Directors
    • September (3)
      • Independent Director
      • Lean Thinking Boards
      • Corporate Governance & Women on Boards
  • 2022
    • August (1)
      • Liability of Independent Directors – An Important Aspect of Corporate Governance
    • February (4)
      • A Hero's Farewell: How to handle employee exits with dignity
      • Green Bonds: An Instrument for Financing a Sustainable Future
      • Tool for effectiveness of Board Committees - Ask Right Questions
      • Russia-Ukraine war and India’s Business Implication
    • July (2)
      • Stagnation or Evolution – Mindset Shifts of Boards when Company sees Stagnated Growth
      • Risk Assessment and Minimization Procedures – Role of Board
    • March (2)
      • A study on Sustainability Report of Container Shipping Companies.
      • India and The ESG impact of Crypto Currencies
    • May (1)
      • Independent Directors liability under GST
    • November (1)
      • Workplace Sexual Harassment and the Role of Board
    • October (2)
      • How many Boards are too many?
      • Women in Indian Boardrooms Vs Diversity = Inversely Proportionate
    • September (2)
      • Organizing for the Future – Important keys to becoming future ready
      • Are you ready to serve on the Board?