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Opinion exam to test the watchdog on the board

by Maurice A. Miller

The government reportedly desires to introduce a qualification exam for independent directors on company boards. The concept is to improve company governance amid a slew of frauds during the last few years. Corporate affairs secretary Injeti Srinivas told Bloomberg that the web evaluation will include cowl basics of Indian agency regulation, ethics, and capital marketplace regulations and will be taken using aspiring administrators, even though skilled administrators will be exempt. The objective: “To demolish the myth that impartial directors don’t have any fiduciary duty” and propagate corporate literacy. This is a nice step in spreading awareness approximately the duties of unbiased administrators, who are appointed to boards to act as outside voices capable of taking an unbiased view of the operations. They ought to have area information and act as trustees of minority shareholders, who typically have little say within the management of massive companies.


Unfortunately, being named an independent director is generally perceived as a plum appointment observed using little responsibility in India. Often such positions are offered to cohorts of promoters. The problem is more acute in country-run companies, wherein the government is the biggest shareholder and gets bureaucrats appointed, no matter their expert suitability. However, a previous couple of years have visible a big change inside the regulatory panorama inside the wake of a chain of frauds and mortgage defaults that rocked the company globally. Oversight of independent directors has intensified, specifically after the Securities and Exchange Board of India (Sebi) remaining yr implemented hints of the Uday Kotak committee on company governance. Granted, unbiased directors can’t be expected to be the only watchdogs for figuring out frauds. But the alarming regularity with which these have unraveled boosts questions over whether they could be averted had outside nominees and groups, including impartial directors and auditors, performed a better task. The authorities’ pass brings extra professionalism to forums to that volume, and it has to be favored. Companies need greater unbiased voices which can put forth an impartial and professional view although it falls foul of the promoters or other powerful control corporations.

But there’s a fallout that policymakers want to consider. The tightening scrutiny of unbiased directors has spooked many specialists who’re refusing to take up such roles. Many of those already serving are either leaving in advance than scheduled or are rejecting extensions. In fact, corporate India has witnessed an exodus of impartial directors as responsibilities have become more laborious and, consequently, harsher. Under the provisions of the Companies Act and the listing guidelines of Sebi, unbiased directors may be held, in my view, liable for any acts of the organization completed with their know-how, or where it’s far determined that this sort of director did now not act diligently. In 2017, for instance, the Supreme Court confined unbiased directors of Jaiprakash Associates from transferring their non-public assets over a collection business enterprise’s insolvency matter. All this has created fear of prosecution and, as a result, caused a scarcity of successful applicants. The authorities, therefore, desire to tread carefully. Nobody can argue in opposition to bringing professionalism and accountability. However, it needs to no longer emerge as fanning worry. Such an outcome might be antithetical to what it is attempting to attain.

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