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Independent Directors: Companies Act, 2013 Section 149 (6)
The section Section 149 (6) of the Companies Act, 2013 provides with an explanation as to who can be an independent director of a company. An independent director is the director who is not the managing director or the nominee director of the company. The section further lays down certain conditions for the independent director to be eligible for the position. It states that the person must be of integrity and having expertise and experience in the business. He cannot be the promoter of the company and can have no relation with the company gits holding, subsidiary for associate company. The independent director or any of his relatives cannot have any pecuniary relations or transactions with the company or its holding, subsidiary or associate company and cannot hold with his relatives’ or more percent of voting shares.
Roles and Duties of an Independent Director
The schedule IV of the Companies Act lists down the various duties, roles, functions, conducts and mechanism of evaluation that an independent director must possess.The Code of Conduct is thus exhaustive and also helps in raising the bar of standards of the performance of the independent directors. The list of roles and duties that an independent director must follow are as such:
1) Safeguard the interests of the stakeholders: An independent director must not only work for the interests of the board but also for benefitting the interests of the stakeholders (both minority and majority), creditors and the other members associated with the company. They must aim to balance the conflicting interests of the stakeholders.
2) Human Resources: The independent director aids in the decision-making process regarding the key managerial positions and other senior management positions. During the rremoval of execcutive directors, key managerial personnnel and senior management, his recommendations are taken into considerations.
3) Advisor to the Board: The inddependent director keeps the Board of the Commpany informed about the internal as well as the external environment of the commapny. He also plays a role in operating the business of the company and also solving board concerns. He prepares a plan of action along with the board and helps in carrying out the same without obstructing the regular functioning of the Board. He reports any unethical practice, illegal activity seen or suspected in the company that can violate the code of conduct followed by the company.
4) Training of the employees: The independent director performs the duty to update the skills and knowledge of the new and existing employees of the company. He also converses with experts and takes appropriate advice and clarifications regarding the business of the company.
5) Participation in financial decisions: The independent director partakes in the discussions relating to the financial situations of the firm. He also decides the remuneration to be given to the key personnel of the firm. He takes responsibility for looking into the financial records of the firm and prepares a plan of action to monitor every financial move of the firm.
6) Board of directors: The independent director contributes in the board discussions and decisions in the matters of performance, risk management, strategies and conduct of business etc. He aids in scrutinizing the Board performance and aids in achieving the goals and objectives set up by the Company. He also is mandated to attend all the board meeting and participate actively in the same.
Need for Independent Directors
The presence of independent directors on the Board of a Company is to aid the directors to balance the various interests of the company and to improve the corporate governance. It is generally important for the public companies or companies having public interest to appoint the independent directors. Where in the board of directors, the other directors specifically represent certain interests in the company, the appointment of the independent directors allow the element of objectivity to creep through the Board process benefitting the minority interests of the shareholders. They also help in benefiting the vulnerable stakeholders who are generally not represented in the Board. Thus, the number of independent directors vary with the size of the companies. In general, there are about one third of thehtotal directors who are ought to be gindependentgdirectors to protect the interests of the public at large.
Despite the name suggests that the independent directors are independent of the company, in reality they lack the independence in the judgement they really require. To be independent they require to be free from any kind of control. The directors of the company are mainly appointed to supervise and check the company’s resources are utilised justifiably. Moreover, the independent directors have an independent voice in the Board of the Company. In a public company the risk is greater as the public company specifically deals with the money which belongs to the public. Thus, to shield the interests of all the stakeholders and to keep an independence in the judgement it is important that there is an independent director appointed to every public company. Over the past years, the country has seen some huge scandals and scams that have betrayed the confidence and trust of the investors of the company. Thus, to reduce such incidences the new Act has come up with the provisions of independent director. This provision overlooks over the illegitimate practices and unethical conduct of the company’s employees.
