1. An Independent Director – Who Is He/ She?

 

Independent director is a non-executive director of a company who helps the company in improving corporate credibility and governance standards. He/ She does not have any kind of relationship with the company that may affect the independence of his/ her judgment.

The term “Independent Director” has been defined in the Act, along with several new requirements relating to new requirements relating to their appointment, duties, role, and responsibilities.

 

2. Applicability On Appointing An Independent Director Listed Public Company

 

Every listed public company shall have at least one-third of a total number of directors as independent directors. Any fraction contained in that one-third shall be rounded off as 1.

 

3. Role of an Independent Director

 

Independent Director as a guide, coach, and mentor to the Company. The role includes improving corporate credibility and governance standards by working as a watchdog and help in managing risk. Independent directors are responsible for ensuring better governance by actively involving in various committees set up by company.

 

The independent directors are required because they perform the following important role:

 

1. Facilitate withstanding and countering pressures from owners;

 

2. Fulfill a useful role in succession planning;

 

3. On issues such as strategy, performance, risk management, resources, key appointments and standards of conduct he must support in gaining independent judgment to bear on the board’s deliberations

 

4. While evaluating the performance of board and management of the company bring an objective view

 

5. Scrutinizing, monitoring and reporting management’s performance regarding goals and objectives agreed in the board meetings

 

6. Safeguard the interests of all stakeholders, particularly the minority shareholders;

 

7. Balance the conflicting interest of the stakeholders;

 

8. Satisfying themselves that financial controls and systems of risk management are in operation and check on the integrity of financial information

 

9. in situations of conflict between management and shareholder’s interest, aim towards the solutions which are in the best interest of the company

 

4. Duties of an Independent Director

 

The Independent Directors shall:

 

1. Undertake appropriate induction and regularly update and refresh their skills, knowledge, and familiarity with the company.

 

2. Attempt to attend company’s general meetings

 

3. Attempt to attend BOD’s meetings and board committees meeting being a member

 

4. Have adequate knowledge about the company and the external environment in which it operates

 

5. Report matters concerning the unethical behavior, actual or suspected fraud or violation of the company’s code of conduct or ethics policy

 

6. Acting within his authority, assist in protecting the legitimate interests of the company, shareholders and its employees

 

7. Not to unfairly obstruct the functioning of the company or committee of the Board

 

8. Participate in the Board’s committee being chairpersons or members of that committee

 

9. not to disclose confidential information, including commercial secrets, technologies, advertising and sales promotion plans, unpublished price sensitive information, unless such disclosure is expressly approved by the Board or required by law

 

10. Ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure that the interests of a person who uses such mechanism are not prejudicially affected on account of such use.

 

5. Other Provisions related to Independent Directors under Companies Act, 2013:

 

1. Companies that trigger the conditions of Corporate Social Responsibility Committee of the Board to formulate and monitor the CSR policy of a Company. The Companies Act, 2013 requires the CSR Committee to consist of at least 3 directors, including at least 1 independent director.

 

2. Where a company is not required to appoint an independent director, it shall have in its Corporate Social Responsibility Committee two or more directors.

 

3. Independent director’s appointment process must be independent of the company’s management. Databank may be used to appoint an independent director

 

4. The independent director shall be appointed for a maximum term of 5 years. The term shall not be more than 2 consecutive terms. He shall be re-appointed only by special resolution by the company.

 

5. Any vacancy in the office of independent director shall be filled in the very next Board Meeting or within 3 months of such vacancy, whichever is later.

 

6. A person must be an independent director in not more than 7 listed companies at a time

 

7. An independent director shall not retire by rotation and shall not be included in “total number of directors’ for the purpose of computation of rotational directors.

 

8. A person can be appointed as an alternate director. But he must be qualified to be appointed as an independent director.

 

 

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