- What are the responsibilities of an Independent Director of a company?
- INTRODUCTION
- An independent director is a director who is not an employee of the company and doesn’t hold a personal stake in any of its business (e.g., stock ownership). Instead, these directors serve on boards for many different reasons, often to provide leadership, improve strategy and governance, help with succession planning, and serve as liaisons between shareholders and management.
- Independent directors don’t have a conflict of interest with the companies where they serve. They bring unique expertise, perspective, and background to the boardroom table. And most importantly, they help maintain an objective viewpoint during decision-making.
- Who are independent directors as per Companies Act 2013?
- An independent director is a non-executive director of a company who helps the company in improving corporate credibility and governance standards. They also ensure that there is no dominance of one individual or special interest group.
- · who, in the opinion of the
Board, is a person of integrity and possesses relevant expertise and
experience;
- · who is or was not a promoter of
the company or its holding, Indian subsidiary, or associate company;
- · who is not related to promoters
or directors in the company, its holding, subsidiary, or associate company.
- Responsibilities of an Independent Director
- 1) uphold ethical standards of integrity and
probity;
- 2) act objectively and constructively while
exercising his duties;
- 3) exercise his responsibilities in a bona fide
manner in the interest of the company;
- 4) devote sufficient time and attention to his
professional obligations for informed and balanced decision making;
- 5) not allow any extraneous considerations that
will vitiate his exercise of objective independent judgment in the paramount
interest of the company as a whole, while concurring in or dissenting from the
collective judgment of the Board in its decision making;
- 6) not abuse his position to the detriment of the
company or its shareholders or for the purpose of gaining direct or indirect
personal advantage or advantage for any associated person;
- 7) refrain from any action that would lead to
loss of his independence;
- 8) where circumstances arise which make an independent
director lose his independence, the independent director must immediately
inform the Board accordingly;
- 9) assist the company in implementing the best
corporate governance practices.
- Duties of an Independent Director
- 1) undertake appropriate induction and regularly
update and refresh their skills, knowledge and familiarity with the company;
- 2) seek appropriate clarification or
amplification of information and, where necessary, take and follow appropriate
professional advice and opinion of outside experts at the expense of the
company;
- 3) strive to attend all meetings of the Board of
Directors and of the Board committees of which he is a member;
- 4) participate constructively and actively in the
committees of the Board in which they are chairpersons or members;
- 5) strive to attend the general meetings of the
company;
- 6) where they have concerns about the running of
the company or a proposed action, ensure that these are addressed by the Board
and, to the extent that they are not resolved, insist that their concerns are
recorded in the minutes of the Board meeting;
- 7) keep themselves well informed about the
company and the external environment in which it operates;
- 8) not to unfairly obstruct the functioning of an
otherwise proper Board or committee of the Board;
- 9) pay sufficient attention and ensure that
adequate deliberations are held before approving related party transactions and
assure themselves that the same are in the interest of the company;
- 10) ascertain and
ensure that the company has an adequate and functional vigil mechanism and to
ensure that the interests of a person who uses such mechanism are not
prejudicially affected on account of such use;
- 11) report concerns
about unethical behavior, actual or suspected fraud or violation of the
company’s code of conduct or ethics policy;
- 12) acting within
their authority, assist in protecting the legitimate interests of the company,
shareholders and its employees;
- 13) not disclose
confidential information, including commercial secrets, technologies,
advertising and sales promotion plans, unpublished price sensitive information,
unless such disclosure is expressly approved by the Board or required by law.
- Bottom line
- In summary, it is crucial for companies to appoint independent directors as they serve as a valuable check and balance to ensure that decisions made by the board are in the best interest of the company and its stakeholders. Appointing an independent director from within the company may lead to conflicts of interest and biased decision-making, which is why it is advisable to appoint someone from outside the organization who can bring an impartial perspective to the table. By doing so, companies can improve their corporate governance standards and enhance their credibility in the eyes of investors, customers, and other stakeholders
