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Monday, Aug 09, 2004

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Independent directors

The concept paper on the proposed new Companies Act is welcome but one wishes that it had made a clear distinction between wholetime functional directors and non-wholetime ordinary directors.

It is the wholetime directors who are responsible for the day-to-day supervision and management of the company's affairs and their involvement is, thus, far deeper and greater than that of non-wholetime ordinary directors. Independent directors of whom much is expected in terms of corporate governance fall into non-wholetime category.

They are not involved in the day-to-day affairs of the companies and their role is limited to attending and effectively participating in the board and other meetings with the object of safeguarding the interests of the shareholders.

However, the laws as they stand today, do not distinguish between functional directors and non-functional independent directors and the latter are also routinely held responsible for any violations by the companies including contravention of the Companies Act and dishonour of cheques.

Independent directors, a good number of whom are retired officials in their advanced age, spend time in courts and before prosecuting authorities on account of the acts of commission and omission committed by functional directors.

Independent directors should be treated on a par with nominee directors of financial institutions and given immunity from prosecution. Unless this is done, not many will come forward to serve as independent directors of companies.

N. Ganga Ram


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Independent directors

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