Centre to beef up role of independent directors, increase accountability

Move aimed at making directors more diligent; Kotak panel suggestions to be incorporated
The case of independent directors had been under scanner with recent cases of corporate frauds.
The case of independent directors had been under scanner with recent cases of corporate frauds.

NEW DELHI: The government is planning to make the role of independent directors more accountable, as the number of frauds reported by companies have gone up substantially in last few months, especially in the financial sectors.

“The role of independent directors is critical for better corporate governance of the company. They are to make the Board decision unbiased with better transparency and are not supposed to be just rubber stamp of the promoters. Unfortunately, this is not happening. This is going to change soon,” a senior official at the Ministry of Corporate Affairs told TNIE.

According to the official, the government is going to make certain changes so that the independent directors are more diligent in performing their duty, which include certain qualifications. Also, promoters cannot appoint these directors from companies that are in direct business transactions with them.

“Many small but effective changes need to be implemented. They will be given more power. At the same time, their accountability will be more. They will be held equally liable in case of any violation of law or unethical practice. We are also taking into consideration the recommendation of the Kotak Panel. By May end or June, there will be greater clarity,” the official said.

The Kotak Committee, formed under the chairmanship of Kotak Mahindra Bank managing director Uday Kotak, had suggested many changes in the role of independent directors. The proposed changes include making it mandatory for companies to hold at least five meetings a year (from four at present), extending the minimum number of directors from three to six, and increasing the number of independent directors from 33 per cent to 50 per cent of a company’s Board, with at least one independent woman director amongst them.

The case of independent directors had been under scanner with recent cases of corporate frauds including the Nirav Modi case, Mehul Choksi case and the questionable role of independent directors on public and private sector banks, involved in fraudulent transactions.

Slated changes
To increase the number of independent directors from 3 to 6
One of them to be a woman
Mandatory for the independent directors to attend at least
3 meetings out of 5
No independent directors from companies with whom the designated company has direct business transactions

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