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The Resonsibilities of Independent Directors

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To execute their role, independent directors, have similar responsibilities to those of other directors. The fiduciary duties of care, diligence and acting in good faith apply equally to independent directors as to other directors. In view of faith imposed on them by various agencies they are more bound to execute their functions with impartiality.

It is necessary for the independent directors to:

Prepare themselves thoroughly for the meeting.

Be objective in forming sound decisions relating to the company and its business.

Be open minded, free and frank in expressing their opinions and at the same be willing to engage in meaningful debates.

Be committed to decisions made as a Board.

Be informed on laws and regulations influencing their functioning as directors.

Utilize the expertise they possess to the good advantage of the company..

Responsibility of independent directors for the prevention and detection of fraud:

The role of Independent Director in fraud prevention and detection has come under the direct scanner of regulators, members and other stakeholders due to the recent exposure of high-profile instances of fraud in India. In the last few months, we can clearly see IDs taking direct interest in reviewing the fraud risk management framework put in place by their organizations to mitigate the risk of fraud.

The report lists 10 questions every director should ask to ensure compliance with governance:

Do we set and communicate the right “tone at the top”?

Do we effectively assess our corruption risk?

Do we have effective standards, policies and processes to address these risks?

Do we adequately communicate and train directors on our anti-bribery and corruption policies and processes?

How do we know that our training is effective?

What incentives do we provide for compliance and penalties for non-compliance?

How do we monitor and audit to detect improper conduct?

Do our compliance officers have adequate clout, resources and independence?

How do we review the effectiveness of our compliance program?

When we find aproblem, do we ensure that an independent and thorough investigation is carried out?

How can Independent Directors protect themselves against liability due to fraud, bribery and corruption?

The Independent Director can play the crucial role of bringing objectivity to the decisions made by the board of directors by playing a supervisory role. While they need not take part in the company’s day-to-day affairs or decision making, they should ask the right questions at the right time regarding the board’s decisions.

Raising the appropriate red flags at the right time would help them in avoiding the occurrence of unwanted situations and their consequences to a great extent.

LIABILITY of an Independent Director:

The Act, 2013, has sought to balance the wide nature of the obligations, functions and duties imposed on an Independent Director.

The Act, 2013, restricts and limits the liability of Independent Director’s to the matters which are directly relatable to them.

Section 149 (12) limits the liability of an Independent Director “only in respect of acts of omission or commission by a company which had occurred with his knowledge, attributable through board processes, and with his consent or where he had not acted diligently”.

Guidance for Independent Directors:

Take care of the Reputation of company

Have Capability to meet the requirements and expectations

Demonstrate independence

See Whether the company has adequate controls and whether they can be relied upon

Have Ability to resist pressure

Have Knowledge on current developments

Be Aware and abide by corporate code of conduct

Seek expert help

Prepare in advance for board meetings

Maintain confidentiality

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