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In every Company, Board of Directors plays a crucial
role in the governance of companies. Board of Directors manages the affairs of
the company in such a way that the company
operates in the best of interest of the shareholders and stakeholders.
Companies see the board of directors’ independence as the cornerstone of
accountability. The presence of Independent Directors in the Board room
dissuades the ineffective use of resources, fraud, and inequality and the unaccounted ability of decisions,
mismanagement. Independent Directors are often seen as the link to maintain the
relations between the stakeholders of the company.
The legislature of India identified the irregularities inside the organizations and corporations, which led to the insertion of provisions of the appointment of Independent Directors in the organization. Most of the scams, failures, and fiascos of businesses and companies are caused by the lack of presence of Independent Directors.
Independent directors of a company or an
In general, as per the Companies Act, 2013 there have to be a minimum one-third independent director in the public listed company and a minimum of two directors in the unlisted public company. By bringing in the independent directors companies need to make sure that-
With these purposes, independent directors of
the company have the authority to take certain actions. Let’s see what are the
list of actions, an ID (Independent Director) can take.
If there is an
Independent director in a company or an organization, following are the actions
that these Independent Directors can take-
need Independent Directors to avoid fiascos and failures, but there are other
reasons as well for appointing these IDs. Below are the reasons, why do we need
IDs in the organization in India?
There is already an IL & FS fiasco, one
of the examples where failure in corporate governance led to the collapse.
Thus, it is really important to craft an effective method for the
implementation of the appointment of Independent
In India, most of the big companies are
familial and the majority of the part is
controlled by the promoters. If we look at the example, in Wipro 76% part of
the company is controlled by the promoters.
The appointment of independent Directors is
not in sync with the functioning of the company. It needs a lot of efforts to
improve the appointment process and structure of IDs.
We will discuss a few of the points, which can bring improvement
in the appointment process of IDs.
To improve the condition of Independent
Directors in relation to their appointment, an impartial solution as a
confirmation of an independent director must be taken from the non-controlling
Appointing the number of IDs for a company
will be very beneficial for every organization.
Following are the benefits of appointing the
number of Independent Directors in a company-
there is a room for improvement in the appointment and removal of these
our experts, if we could follow the below
points, we can improve the role of independent directors-
Despite all of this, there have to be more things in the favor of
Independent Directors for the better governance and working of a company.
Currently, Independent Directors are not the
interest holders of the company; they have nothing to lose in becoming an ID of
Even after the corporate failures such as
IL&FS, Satyam, and Cyrus Mistry;
Indian legislature has not done enough to acknowledge the problems faced in the
role of Independent Directors. There is still a lack of clarity in their roles
and Independent Directors must have the precision for that position. If proper
roles defined these IDs, it would result in much better corporate governance.
For more information, please contact Enterslice.
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