Independent Directors: Functions, Responsibilities

Transcript:Independent Directors: Functions, Responsibilities:
Independent Directors: Functions, Responsibilities & Accountability. Dimensions of the office of the Independent Director in India. Governance Challenges in Contemporary Business Environment Corporate Reporting: Enhanced disclosures & Responsibility Greater focus on strategy, long-term value creation and Reputation Shareholder Engagement & Activism. Heightened Proxy Advisory interventions Stakeholder value, Responsibility Towards Society Board composition, diversity and boardroom effectiveness Key Governance Issues for companies in 2015 Independence in Law What defines an Independent Director? Independent Director is defined u/s 149(6), CA 2013, as a director other than managing director, whole-time director or a nominee director, one who qualifies the tests of Integrity, expertise and experience and fulfils the exclusionary relationships test, as laid down under the law. Integrity. Threshold defined under the Companies Act (CA), 2013 and additionally assessed by the board of directors and self-attested by the ID. Independence. Assessed in terms of an IDs relationships with the company/ promoters/ management. Not having held relationships (personal, professional, familial) excluded under CA 2013. Expertise. a combination of subject matter expertise, industry exposure and past board experiences. Independence defined … A person of Integrity Integrity is not defined in law. Black’s Law Dictionary defines integrity of a person to mean soundness of moral principles and character. The test of Integrity is done through an subjective assessment by the Nomination Committee and the board of directors against minimum legal standards or enhanced standards. Relevant expertise and experience Independent Directors should possess an appropriate balance of skills, experience, and knowledge of one or more areas like finance, law, management, sales, marketing, administration, research, corporate governance. Exclusionary Relationships – Section 149(6), CA 2013 – e.g. An Independent Director must not be related to the promoters of the company, and must be independent of the management of the company. Apart from director’s remuneration, has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during current as well as two immediately preceding financial years Restrictions on company shareholding. (self plus relatives shareholding < 2% of company’s total voting power). No restricted professional relationships current or previously held. Legal Duties of Independent Directors Fiduciary Duties Independent directors hold their position in a fiduciary capacity. Their legal duties are embodied by the principles of fiduciary duty. The expression “fiduciary capacity” implies a relationship that is analogous to the relationship between a trustee and the beneficiaries of the trust. It extends to