It seems we live in an independent director-bashing era. News articles, blogs, scholarly write-ups are replete with criticism relating to independent directors, whether it’s to do with their appointment, ‘true’ independence, removal, resignation or generally their very existence! Anything remotely connected to what such directors do is presented as wrong. From a legal stand point, however, the law of director’s liability and fiduciary duties applies equally to independent directors. Such directors do not have any meaningful defence available to them by the mere taxonomy of the position held by them. Why then is the sentiment so negative?

Critics argue that the key issue emanates from the method of appointment of such directors because they feel that the people chosen are typically those that are close to promoters and can influence decision making. But practically, a total stranger on board could be the worst choice even for truly independent decision making.

Continue Reading Need for New Voting Regime to Achieve True Independence

This piece was previously published in the Economic Times

Next on the list of dilemmas relating to corporate governance issues for independent directors (ID) of a listed company is Board Evaluations. These are 360-degree reviews of the performance of a board of directors, conducted by the Nomination and Remuneration Committee (NRC). In a formal board evaluation process, each director reviews the other.

Interestingly, based on such evaluation, the NRC has to determine (amongst other things) whether an ID should continue holding his directorship or not. Earlier on, such evaluations were voluntary and some companies have been making generic voluntary disclosures in the annual report stating that the evaluation was conducted and recommendations were absorbed for improvement of board functioning. Going forward, the content of this disclosure will change.

Continue Reading Board Evaluations a Nightmare for Independent Directors?

One of the key tenets of effective corporate governance is the ability of a corporation to promote transparency. Transparency and accountability is strengthened not just by efficient management and robust disclosure policies, but also by the creation of systems and processes to detect and address internal instances of fraud and corruption.

Whistleblowing has always played a distinct role in making companies alert to, and mindful of, employee conduct as well as internal processes and procedures. The existence of this class of facilitators is well recognised in the Indian legislative framework. Under section 177(9) of the Companies Act, 2013, it is mandatory for every listed company to establish a vigilant mechanism for directors and employees. Furthermore, the revised clause 49 of the listing agreement mandates that the company must establish a whistleblower mechanism with adequate safeguards against victimisation of whistleblowers.

Whilst immensely beneficial, tipping off/whistleblowing comes with its own set of unique challenges for the company, the alleged wrongdoer as well as whistleblowers themselves. While there is no ‘one size fits all’, certain aspects, as detailed below, should be considered by any company seeking to establish a whistleblower mechanism: Continue Reading Who Can Hear The Whistle Blow? Whistleblowing And Its Impact On Corporate Governance In India

A Brief Conceptual Background

The discourse on corporate governance has been garnering considerable attention in the public domain in India, mainly due to the introduction of the Companies Act, 2013 (“Act”), the steps being taken by the Securities and Exchange Board of India (“SEBI”) in promoting governance, and the escalating activism of shareholders and proxy advisory firms (“PAFs”) in the public markets.

The corporate governance regime in India has been implemented mostly reactively, thus far. One of the reasons could be the prevalence of the family-owned businesses in India which present a distinct and additional set of governance concerns such as safeguarding the interests of minority shareholders, the fiduciary duty (if any) of the promoter(s) to minority shareholders and the duties of the board of directors in conflict situations. As such, this feature may have effectively prevented Indian regulators from adopting the governance frameworks implemented in more evolved jurisdictions like the UK or the USA. Even Germany, where the corporate ecosystem is comprised of large family-owned businesses like India, could not have an appropriate reference point for Indian regulators, given the board structures there. To elaborate, German corporations have adopted a two-tier board structure whereby representation is mandatorily available to employees on the upper tier (supervisory) board. As such, this prevalence of family owned concerns could have been one of the reasons why the Indian corporate governance regime has largely remained prescriptive and reactive.

Continue Reading Corporate Governance & Shareholder Activism