The Institution of Independent Director: [Essay Example], 760 words GradesFixer
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The Institution of Independent Director

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The concept of the institution of Independent Director’s is simple. They are expected to be independent from the management and act as the trustees of shareholders. This implies that they are obligated to be fully aware of and question the conduct of organizations on relevant issues. The role of an Independent Director is considered to be of a great significance. The guidelines, role and functions and duties and etc. are broadly set out in a code described in Schedule IV of the Act, 2013.

The code lays down certain critical functions like safeguarding the interest of all stakeholders, particularly the minority holders, harmonizing the conflicting interest of the stakeholders, analysing the performance of management, mediating in situations like conflict between management and the shareholder’s interest etc. The code also lays down certain important duties like keeping themselves updated about the company and the external environment in which it operates;

Not disclosing important and confidential information of the company unless approved by the board or required by law; Actively participating in committees of the board in which they are chairperson or members; Keeping themselves update and undertaking appropriate induction and refreshing their knowledge, skills and familiarity with the company, regularly attend the general meetings of the company and etc.

Role of the Lead Independent Director:

Identify themost critical issues for the board to deal with Assist theboard in achieving consensus on important issues Play the role of a facilitator outside the board room especially on contentious issues Work with the CEO to prioritise issues, set the agenda and enable it to focus on substantive issues Ensure that board conversations do not veer in the direction of certain unwanted topics / individual preferences Provide candid feedback to CEO, CFO post an executive session. The shareholders, especially the minority shareholders, look to independent directors providing transparency in respect of the disclosures in the working of the company as well as providing balance towards resolving conflict areas.

In evaluating the board’s or management decisions in respect of employees, creditors and other sup- pliers of major service providers, independent directors have a significant role in protecting the stake holders interests. One of the mandatory requirements of audit committee is to look into the reasons for default in payments to deposit holders, debentures, non-payment of declared dividend and creditors. Further they are required to review the functioning of the “Whistle Blower mechanism” and related party transactions. These, essentially, safeguard the interests of the stakeholders. Role towards the Board: As members of Board, their role is similar to any other director; independent directors primarily provide inputs to all key decisions, such as strategies, performance evaluation and risk evaluation, affecting the company.

The single most important role that independent directors play directly in relation to the board is the objective view that they bring in while evaluating the board and the management decisions, creating a balance in the interest of the shareholders. An independent director should ensure that the Board addresses areas of concern on the running of the company and that these are recorded in the minutes if not resolved. While the legal duties and objectives are the same as executive directors, the time devoted by independent non-executive directors to the company’s affairs is significantly less and therefore the degree of care, skill and diligence is lower than that expected from executive directors. It’s the responsibility of the Independent Director to Compliance with the Company’s Code of Conduct.

Role in Committee Membership:

The companies act, 2013 most corporate governance requirements and provide that “independent directors” shall necessarily be appointed to key committees such as

  • Nomination,
  • Remuneration,
  • Investor relations, and Perhaps the most important, on the audit committee.

Infosys Case:

Infosys Technologies has appointed a Lead Independent Director representing and acting as a spokesperson for independent directors group. The role of the Lead Independent Director as per the company’s annual report is as given below:

  • Presiding over all executive sessions of the board’s independent directors
  • Working closely with the Chairman, co-Chairman and CEO to finalize the information flow, meeting agendas and meeting schedules
  • Liaising between Chairman, co-Chairman, CEO and independent directors groups Taking the lead role, along with Chairman and co- Chairman, in the board evaluation process.
  • Independent director in Audit Committee and its importance in the Indian Context:

The Act, 2013 has also emphasized on the appointment of an Independent Director in the Audit committee which shall comprise of minimum three directors, Independent Director’s should form a majority. In the same way, the Nomination and Remuneration Committees which shall consist of three or more non executive directors, Independent Director’s should not be less than half of the total number of members.

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