Thus, there can only be two types of companies — those that follow corporate governance norms in letter and spirit by setting benchmarks and those that do it merely for the sake of it. A debate has arisen about the very concept of independent directors and their need.

It is a fact that not every company can afford or expect to have the crème-de-la-crème of independent directors as they are not available in big numbers. However, companies can expect directors to act independently by setting a good ‘tone at the top’, which refers to the ethical atmosphere created in the workplace by the leadership. The tone set by the management has a trickle-down effect on everyone. A good tone by the management would principally comprise: i) communicating to everyone what is expected of them; ii) lead by example; iii) provide a safe mechanism for reporting violations; and iv) rewarding integrity.

The Association of Certified Fraud Examiners has noticed a direct correlation between a negligible tone-at-the-top and frauds. An excellent ‘tone at the top’ also means following accepted practices in accounting and other areas. The Enrons and Satyams would not have occurred if companies had not aspired to misuse the concept of special purpose vehicles or use group companies as a façade for the ills of the parent. Companies have altered depreciation policies not necessarily due to a change in the useful life of assets; have reported that accounting records of a subsidiary have been lost to cover up reported losses; have revalued assets with an intent to beef up the balance-sheet; and have appointed teenagers as directors just to comply with statutory regulations.

There can be no argument that in many instances, we tend to look to the West for guidance and models. Although there have been Indian committees on corporate governance,their reports attempted to follow the Cadbury Report at least for direction.

There have been studies that highlight the differences between other models and ours. While the Western models focus on disciplining the top management, we should focus on disciplining the dominant shareholder who runs the show and in some instances derails it too. Training independent directors could be a possible solution, as at least they would be aware of what is happening around them and the implications of being yes-men.

The key responsibilities of independent directors would be to guard minority interest shareholders apart from objecting to conflict-of-interest situations, such as cosy transactions with related parties. All this calls for training and, more importantly, experience.

The concept of independent directors may not end and would stay on the statute book as yet another corporate governance initiative. A regulatory mechanism that takes swift action against wrongdoing, punishes the guilty and acts as a deterrent would by itself fortify the post of an independent director, as he would know that the Damocles’ Sword hangs over everyone’s head. As Mahatma Gandhi pointed out “You have to be the change you want to see in the world.”

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