More than seven of 10 independent directors sitting on the boards of listed companies to improve corporate governance are “home” members, while only few women make it to such positions, says a study.”Nearly 75 per cent of all independent directors are ‘home’ members who are natural allies of the promoters are not independent in any sense,” said a study by research firm Prime Database, which operates website directorsdatabase.com, a joint initiative with the Bombay Stock Exchange(BSE). Even if the “home” members, which include relatives, friends and neighbours, are qualified they cannot act independently because of their connection with the promoters, said the study based on the profiles of independent directors on the boards of 2,244 companies listed on the BSE.The study further points out that very few women are independent directors, about 2.5 per cent of the 6,443 such functionaries engaged by listed companies.

“Women in India have made rapid strides in almost all walks of life, and have not only excelled but also demonstrated a higher degree of governance. But not when it comes to directorship position. Only 2.5 per cent of independent directors are women,” it said.As per Clause 49 of the listing agreement, 50 per cent of the directors on boards of listed firms should be independent directors. The norm was introduced by the capital market regulator SEBI to promote corporate governance.

The Prime Database study further points out that companies often engage celebrities as independent directors “to add an aura of respectability and news value to the company, as also to impress both the institutional as well as the retail investors”.

About five per cent of the independent directors fall in the category of celebrities which include film stars, lyricists, sportsmen, defence personnel and fiction writers.Noting that like in 1980s when the companies hired celebrities like Sunil Gavaskar and Field Marshall Manekshaw “as selling tools for their IPOs (initial public offerings)”, the study said, “We have…now legitimised these celebrity directors by giving them the respectable title of independent directors.”

Though most people in the celebrity category would be people of high integrity, “they would have very little clue to the world of corporates or of promoters’ design. They are just happy lending their names”.

Only 15 per cent of the independent directors engaged by the listed companies, the report said, are capable of adding value to discussions and participate in board meetings. These include lawyers, finance professionals and technocrats.As regards the age profile of independent directors, the Prime Database study said that 48 per cent of such directors are above 60, while a few of them are in their nineties.

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0 responses to “Are Independent directors really independent?”

  1. g balakrishnan says:

    They can independendently say things at board meetings. my experience is that we are not paid very high fees but only a sitting fees which is indeed very nominal compared to regular executive directors. so we tell things whatever disclosed in the meetngs of the board. Other than that information and compliace statements signed invariably steriotyped, we do not know company information. On that scant information we honestly interact and respond on corporate governance. The companies take some of our views and the get benefitted. for instance in economic management of energy we tell the company as to how to economize not in a miserly way but pragmatic ways, by virtue of our experience of observing a particular industry. we do not always recommend cost cutting in silly ways. we do not recommend worker or staff reduction routinely, but we ask evaluation reports by the relevant departments and we study them and in the subsequent board meeting we give our views. After all our views invariably advisories to the company, mostly some companies discuss with us on the utilty of our opinions, some just say it is great but they do not use and we see the minutes of meetings. Independent directors though appointed under sec,49 of SEBI Listing agreements Act, effectiveness is not assessed be SEBI by sending their confidential questionnare at all. that way utility is just get diluted. SEBI when it taslks too much but it is not indeed very active. See in Satyam case, the shares are traded while in US is stopped. Regulators should be eagle eyed but they seem to be day dreamers. I am on three textile related companies in gujarat, west bengal and in kerala. Indian regulators barring a few really do not really knoe how to regulate and they live in their own world, like delhi HC gave a verdicvt on gays, without taking into consideration the social norms which is the backborne of any judicial system and judiciary is not some radical institution and they cannot exrapolate and intrapolate the constitutions and the have to be controlled by constitutions and social accepted norms. If they fail they cause social revolts.

  2. g balakrishnan says:

    site is good and educative. we with our experiece as independent directors with about 10 years standing in public limited companies may be able to contribute in the area of independent directorships!

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