Sub: Role of Independent Directors in Corporate Governance
Independent Directors are directors who are not associated with the company. They plays a key role in promoting the corporate governance in the company.
An independent director is a non-executive director of a company who helps the company in improving corporate credibility and governance standards.
These directors does not have any relation with the company that may have an impact on their functioning. They belongs to the non-promoter category, who oversees and supervise the broad functioning and governance structure of an organization.
The Companies Act, 2013 has empowered them with wide responsibilities and powers. Further their appointment is mandatory in following companies:
i) Every listed public company,
ii) Public Companies having paid up share capital of ten crore rupees or more; or
iii) Public Companies having turnover of one hundred crore rupees or more; or
iv) Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees.
Moreover, the Independent Directors plays a significant role in committees of the board viz, Audit Committee, NRC Committee, CSR Committee, Risk Management Committee, etc.
The Ministry of Corporate Affairs had earlier mandated them to enrol with IICA.
The role of independent directors broadly includes:
i) Balancing the interest of stakeholders,
ii) Strategic advisory to the board of directors,
iii) Mitigates risk and promote corporate governance,
iv) Monitoring the performance of management,
v) Bring technical expertise in their core areas of functioning,
vi) Promotes corporate culture and sustainable development, etc.
Summary
Considering the business environment, the role of independent directors is crucial in decision making, and strengthening the corporate governance structure in an organization.
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