Independent Director and itsRole, Responsibility & Duties

Research Data CompilerKshitij Samant Praniti Porwal

Presentation FinalisedDrishti Sidhwa Vishal Dhona

Emergence

SOS ActCadbury CommitteeNarayana Murthy CommitteeKumar Mangalam Birla Committee

on Corporate Governance

Why it is needed ?

Two major changes over the past scenario: variety of stakes in a modern corporation, apart from the stake of

the legal equity holders; and thanks to capital markets, major diversification of the equity capital

leading to ever larger distance between the owners of capital and the managers.

The decline of banking and the rise of the institutional investor Increasing power and size of enterprises

Working of the economic systementerprises spreading offices and employees in

dozens of countriesBusiness activities spreading across the continentsShareholders scattered across the world Investments by institutional investors

Definition of Independent director

As per section (47) of Act “independent director” means an independent director referred to in section 149.As per sub-section 6 of Section 149 of Act, Independent Director means a director other than a managing director or whole-time director or a nominee director,

is a person of integrity Not a promoter of the companyNot related to promotersHad no pecuniary relationship with the companyNone of its relatives has pecuniary relationship or transaction with the

company;Not have held position of KMP or an employee

Cont..

Not been an employee, proprietor or partner Firm of auditor or PCS or cost auditor Legal or consulting firm

Does not holds 2% or more of total voting power Is not chief executive or director of Non Profit Organization that

receives 25% or more of its receipts from the company And such other qualifications as may be prescribed.

Role of Independent Directors

In the schedule IV of the companies act, 2013 the roles and duties have been laid down:-

Impartial judgmentStrategic advisor to the companyWatchdog for interest of stakeholdersModerate in the interest of the company in conflict situationsTransparency Innovative or creative suggestions for better future prospects of the

companyOverview that the company is following good governance policy

Responsibilities

Uphold ethical standards of integrity and probity Act objectively and constructivelyAct in a bona fide mannerDevoted and take balance decisionsDo not abuse the positionRefrain from any action that shall lead to loss of his independenceAssist the company in implementing the best corporate governance

practices

Declaration by Independent Director

Section 149(7): Every independent director shall give a declaration that he meets the criteria of independence as provided above in the definition Section 149(6), at the first board meeting in which he participates as a director and thereafter at the first board meeting in every financial year or whenever there is any change which may affect his status as an independent director

Duties

To undertake appropriate induction and regularly update and refresh their knowledge, skills and familiarity

Strive to attend all meetings of the board of directors and board committees of which he is a member

Participate constructively in the committee of board of directors in which they chair person or members

Keep themselves best informed of the workings of the company and the external environment in which it operates

Acting within his authority, assist in protecting the legitimate interests of the company, shareholders and its employees

Contd…

Not disclose confidential information, including commercial secrets, technologies and unpublished price sensitive information, unless such disclosures is expressly approved by the board or required by law.

Report concerns about unethical behavior, actual or suspected fraudSeek appropriate clarification or amplification of informationAttend general meetings

Presence of Independent Director

Corporate Social Responsibility Committeeu/s Sec 135 (1)

Listed Companies

Stakeholders Relationship Committee

Audit Committee

Nomination and Remuneration committee

Term of Office

5 (original term) + 5 years (additional term subject to a special resolution).

After expiry of term individual ineligible for reappointment for 3 years.

Tenure to be non-rotational

Original Term AdditionalTerm subject to a

special resolution

Remuneration

An independent director shall:

not be entitled to participate in any stock option, receive remuneration by way of fee , be entitled to reimbursement of expenses for participation in the Board

and other meetings, and entitled to profit related commission as may be approved by the

members.

Provision with respect to Board Meetings

A meeting of the Board may be called at shorter notice to transact urgent business subject to:at least one independent director, if any, shall be present at the meeting.

Penalty for non-compliance of independent director provisions Double penalty for non-compliance – under Companies Act and

Securities and Contract Regulations Act (SCRA)Penalty under Companies Act, 2013; INR 50,000 to INR 5,00,000. Penalty under SCRA; Imprisonment up to 10 years or fine up to Rupees

25 Crore.

How the professionals can be recruited as Independent Director?

At the website of Institute of Company Secretaries of India (www.icsi.edu) one can find the data base of members with extensive exposure and who are willing to act as Independent Director.

Examples of liability of independent directors In case of Worldcom and Enron, directors settled liabilities:

$ 18 million by 10 outside directors in Worldcom$ 13 million by 10 directors in Enron

In Walt Disney case, the court did not impose liability on directors:Ruling based on Delaware lawDuty of care, fiduciary duty and gross negligence discussed at length

India: The conclusion is inevitable that the liability arises on account of

conduct , act or omission on the part of a person and not merely on account of holding an office or a position in a company.

Before the presentation

After the Presentation!!

Last but not the least!!