Independent Director means a director who does not have any relationship with a company in any manner. Independent Director as per Companies Act, 2013, an Independent Director means a director referred to in sub-section (6) of section 149. As per Section 149(6) of Companies Act, 2013, an Independent Director in relation to a company, means a director other than a Managing Director or a Whole-Time Director or a nominee director who fulfills the requirements mentioned there in.
An Independent Directors refers to the board members, not the organization, helps share a neutral opinion as they are not attached to the existing management, Their Primary role includes:
INDEPENDENT DIRECTOR WORK:
The most important role is to set the remuneration of top executives. It is proven that chief executives of listed companies are highly overpaid. So this tries to take a neutral decision regarding the correct pay structure.
They must provide an unbiased judgement regarding important corporate finance decision. Also they should always keep shareholder’s benefits in mind before deciding. Economic, Social and governance (ESG) factors must also be considered while making decisions.
And to act as a middle person between the management and the shareholders. Play an active roll in controlling conflicts between the parties.
INDEPENDENT DIRECTOR DUTIES:
Independent Director are paid on a sitting basis. The pay is also huge. So actually, shareholders are spending money to get advice from the experts. They must stay updated all the time. They should constantly upgrade their skill, knowledge etc.
That is to blow the whistle when he sees something unethical, fraudulent, or a company violation, He is working for the shareholders and should always continue to do so.
They must meet outside separately, without the presence of management, to discuss the company’s current scenario.
They should not miss the meetings as they help understand the companies inside more deeply. So they must attend the meetings.
INDEPENDENT VS NON-EXECUTIVE DIRECTOR
A Non-Executive Director is a director who is not an organization employee. On the other hand, an independent director is not an organization’s employee but in bound by several other requirements.
For Example: They cannot hold the shares of organization. However, there is no such rule for non-executive directors. So all independent director are non-executive director, but all non-executive directors are not separate.
INDEPENDENT DIRECTORS BENEFITS
To keep the remuneration of the top-level executives as per industry standards.
To serve as an intermediary between the shareholders and managements and help resolve solving conflicts.
ID can also acts as an external auditor and tries to find accounting frauds, if any.
COMPULSION TO APPOINT INDEPENDENT DIRECTOR
Every listed public company shall appoint at least one third of the total numbers of directors as independent directors and the following classes of the companies that are required to appoint at least two independent directors (In case, they are required to appoint higher number of independent directors due to composition of its audit committee, such higher number of independent director shall be applicable to it):