Question: Name the job that could be one of the riskiest around and for which there are plenty of open positions in India?

Answer: Independent Director.

Years ago, an appointment as an independent director was considered an honour. That was changed after the Satyam and other corporate governance scams.

Today, an independent director is considered to be an onerous responsibility. Independence, being a state of mind, cannot be defined, but the expectation from the director was that he would exercise independence when it was most needed.

The Companies Act, 2013, changed all that by laying down a Code of Conduct for independent directors, which features a list of 30 items an independent director is expected to exhibit.

A cursory glance at the Code gives an idea of what the Government is expecting from an independent director: he or she should conduct the roles of an auditor, policeman and housewife all rolled into one — auditor because he is to report fraud, policeman because he is to ensure that the operations of the company are conducted in accordance with law, and housewife because the independent director is supposed to generally have the sixth sense to spot if something is going wrong.

Good intentions

The Code has the best of intentions. The preamble states that adherence to these standards by independent directors and fulfilment of their responsibilities in a professional and faithful manner will promote confidence of the investment community, particularly minority shareholders, regulators and companies in the institution of independent directors.

The 30 tasks have been broken down into guidelines, roles and functions and duties. The roles and functions include not-so-easy tasks such as satisfying themselves on the integrity of financial information, and that financial controls and systems of risk management are robust and defensible.

The duties include even tougher tasks such as report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy.

But what would be the repercussions if they violate even one item on the Code?

The Act appears benign when is states that an independent director and a non-executive director, not being a promoter or key managerial appointee, shall be held liable only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.

The key for independent directors appears to be to document everything to ensure that it is proved that transactions have not occurred without his knowledge.

What about the public sector?

Independent Directors of public sector undertakings are chosen by the Cabinet Committee on Appointments.

Considering the fact that quite a few public sector undertakings are listed on the bourses and the Government has an active plan for disinvestment, there would be no dearth of demand for independent directors.

The Government should think about either enhancing the strength of the existing Committee or forming a new expert committee that would ensure that persons appointed as independent directors in public sector undertakings exhibit independence when required.

The writer is a chartered accountant

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