Role of Independent Director Incorporate Governance

7/28/2019 Role of Independent Director Incorporate Governance

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Concept of Independent Director

Independent director means a director who is not

connected or associated with the company in any

manner and works onlyto safeguard the interest of

members who individually cannot look after their

interest.


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Genesis

The concept of Independent director has been

originated to drive the companies towardsinculcating the concept of corporate governance

in their management.


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What is CorporateGovernance???


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Corporate Governance is the application of best

management practices, compliance of law in true letter

and spirit and adherence to ethical standards for effective

management and distribution of wealth and discharge ofsocial responsibility for sustainable development of all

stakeholders.

-The Institute of Companies Secretaries of India


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Corporate Governance Framework

Output Input

= Wealth Created ?

Sustainability

Happiness andProsperity of all

Stakeholders

Reinvestment

Distribu-tion

Research and

DevelopmentHR Development

Infrastructure

Risk Management

SUPPLIERS

Adequate Returns

HUMAN ASSETS

Adequate

Remuneration

CUSTOMERS

Affordable Prices

PUBLIC

Payment of Taxes andPartnership in National

Development Projects

Wealth Creation Wealth Management Wealth Sharing

Enhanced

Capabilities

Best Management Practices are Vital Here Law and Ethics are VitalHere


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Stakeholders in Value Chain

SUPPLIERS CUSTOMERSHUMANRESOURCE

Supply Funds,Materials and Services

Value Addition andManagement ofResources

Give Opportunity to Co.to Satisfy their Needs

Adequate Returns forFunds, Material andServices Supplied

Adequate Salary andSecurity for leading aHappy Life

Best Quality Productsand Customer Care atMinimum Prices

ROLE OF STAKEHOLDERS

EXPECTATIONS OF STAKEHOLDERS

Potential Suppliers, HumanResources and Customers

Biological, Economic andCultural EnvironmentPUBLIC

PUBLIC EXPECTS PARTNERHIP FOR SUSTAINABLE DEVELOPMENT


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Satyam Vada Dharmam Chara- Taittariya Upanishad


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Forever speak thetruth and follow thedharma


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Truth :Disclosure of Actual State of Affairs(Transparency in operations and transactions)


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Dharma : Dharma is for the stability ofsociety, the maintenance of social order and thegeneral well-being and progress of humankind.

- Karna Parva of the Mahabharata. Verse-58 in Chapter 69


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Corporates are also expected to use their

Capacity, Knowledge and Resources

Maximisation of stakeholders value and well-being and progress ofhumankind

TOWARDS

THROUGHTransparency, accountability and truthful disclosure of state of

affairs

Dharma

Truth


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This is our own age old mantra of

Good Governance


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Companies that have followed these

principles ofCorporate Governance

have


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Consistentlyearned high returns,increased their net worth and

enhanced their shareholders wealth


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..and accomplished


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WINNING

EMPLOYEES GROWINGINVESTORS

DELIGHTED

CUSTOMERS

TRUSTED

SUPPLIERSSATISFIED

GOVERNMENT AND

REGULATORS

HAPPY

SOCIETY


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Who is

Independent Director???


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IndependentDirector

Absence ofPecuniaryRelationship

Absence of MaterialRelationship

One who hasIndependency of Judgment


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IndependentDirector

InterdependentDirectorVs.


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Not having any material pecuniary relationships or transactions with

the company, its promoters, its directors, its senior management or its

holding company, its subsidiaries and associates.

Not related to promoters or persons occupying management positions

at the board level or at one level below the board

Not been an executive of the company in the immediately preceding

three financial years

Definition of Independent DirectorClause 49 (1)(A)(iii) of Listing Agreement


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Definition of Independent Director

Clause 49 (1)(A)(iii) of Listing Agreement

Not associated with the statutory audit firm or the legal firm having

material association with the company.

Not a material supplier, service provider or customer or a lessor or

lessee of the company.

Not owning two percent or more of the block of voting shares


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Directorships Matrix

ExecutiveGroup

(Salaried)

PromoterGroup

IndependentGroup

Managing /

Whole TimeDirector

Director

Chairman Executive

Chairman

Executive

/Non-ExecutiveChairman

Non-ExecutiveChairman


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Position of Independent Director

ExecutiveDirector

Owner DirectorIndependent

Director

Board ofDirectors

Interest of Company

Interest ofShareholder

Interest ofStakeholders

Balancing of Interests

PrimaryDuty

EnhancedResponsibility


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Independency of Director

Concept & Reality


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Concept

Legal

Disinterested director

Unbiased decisions

Balancing of conflicting interests

Protection of shareholders interests

Protection of stakeholders interests

Protection of whistleblowers interests

Managerial

Bring expertise in the Board composition

Infusion of new ideas

Develop a system in the Board Culture


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Reality

Independent Director

DisinterestedDirector

UninterestedDirector

No Yes


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Compliance in Spirit Compliance in Letter

Disinterested Director

Expert in a particular

discipline

Uninterested Director

Friend or relative not

coming u/s 6 ofCompanies Act

Reality Appointment of IndependentDirector


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Reality Appointment of IndependentDirector


Knowledge about theCompanys business

Precedence to

knowledge over names

Capability to dissent

Not concerned with theCompanys business

Precedence to name

over knowledge

Yes- Man


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Reality Working of IndependentDirector


Provides independentassessment of businessdecisions.

Provides expertcomments on the subject

Acts as per the whims ofmanagement.

Silent observer at theBoard meetings.


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Informed decisions

Ensures unbiaseddecisions

Decision on selectiveinformation.

Independent statustakes a backseat.

Reality Working of Independent

Director


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Critical Issues


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Those who areeligible, haveno time.

Those who havetime, arenot eligible.

Ingredients of Independent Directors

IndependentEligible/

Expert

Sufficient

Time

Corporate

Governance

BUT


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Insufficient knowledge regarding the business

Reliance on Executive Director/CEO forinformation

Selective information sharing

Lack of understanding

Informed Decisions

Not possible


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No legal requirement for qualification ofIndependent Directorexcept for the member ofAudit Committee who shall be financial expert.

Quality & ingredients are subjectivephenomenon.

No independent appointment.

Capability & Capacity

MajorShareholders

ExecutiveDirectors

IndependentDirector

In 60% companies, Board consists of shareholders holding more than

50% stake.


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Unbalanced Risk & Reward Equation


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Compensation

Too less willdeter expertsfrom

undertakingresponsibility

Too high willloose

independence .


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Rights & Duties


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Rights & Authorities

Right to attend and vote in every Board

Meeting.

Right to be appointed on various committees.

Right to demand information on every

business matter.

Right to seek clarifications/justifications

Right to dissent.


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Duties & Responsibilities

Primary Duties Enhanced Responsibilities

Act in the best interests of the

company

Safeguard the interests of the

stakeholders

Attend Board Meetings and

participate in decisions

Avoid conflict situations

Not seek personal gains

Maintain confidentiality

Fiduciary duty

Discharge duties required in

specific committees of the Board

To compel directors to act in

accordance with the strict terms of

their mandate

To compel them to exercise care and

skill in carrying out their various

functions

To compel them to use their wide

discretionary powers in good faithand proper purpose, &

Finally, to compel them to act

loyally in advancing the interest of

their company.


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Corporate Issues &Regulator perspective


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Corporate Issues

Preference of Stakeholders interest above the

interest of Company. Forces disclosure of confidential information.

Interferes in Management Decisions.

Acts as Bloodhound dog.


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Regulator Perspective

Independence director has primary duty towards the

Company and enhanced responsibility towards

stakeholders.

Reduce conflict of interests of management.

Ensures protection of wider interest of Company and

stakeholders.

Ensures transparency of information.

Provides independent Assessment while evaluating

business decisions as an independent Business Advisor.

Acts as a watchdog.


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Independent Director in a JV

JV Company

Partner A Partner B

Interest ofPartner A

Interest ofPartner B

Interest ofCompany & Stakeholders

Reconciliationof Interest


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Corporate Governance at Infosys

Board Strength

15 Directors

7

Executive Directors

8

Independent

Directors


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And

Thats what makes

Infosys

A value driven organization

CRISILCRISIL GVC

Level 1

ICRACGR 1


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Documents

Role of Independent Director Incorporate Governance