Independent Directors - Legal Aspects of Business

2. WHO IS AN INDEPENDENT DIRECTOR?
“Independent Director” means apart from receiving director’s renumeration, does not
have any material pecuniary relationship or transactions with the company, its promoters, its
senior management or its holding company, its associated companies and subsidiaries. The
additional requirements are:
• He/she should not relate to promoters or management at the board level or at one level
below the board
• He/she should not be an executive of the company in the immediately preceding three
financial years
• He/she should not be a partner or an executive of the statutory audit firm or the internal
audit firm that is associated with the company, and also not been a partner or an
executive of any such firm for the last three years
• He/she should not be a substantial shareholder of the company, i.e. owning two percent
or more of the block of voting shares

3. BENEFITS OF HAVING INDEPENDENT
DIRECTORS
• Providing a Different Perspective: Independent directors often bring a fresh perspective to
issues and are able to identify problems and suggest solutions
• Independently Approving Certain Board Actions: Raises the confidence level of
shareholders and outside constituents if impartial persons approve the transaction and also
mandate Independent directors for foreign unlisted subsidiaries
• Independent Directors play role as a Business advisor: IDs contribute to the
development of corporate strategy, reviewing the performance of management and
protecting interests of the public shareholders
• Counterbalance management weaknesses in a company: Ensure legal and ethical
behavior at the company, while strengthening accounting controls, and also a source of well-
conceived, binding, long-term decisions for a company.

4. ROLE OF INDEPENDENT DIRECTORS
2 key parameters are of interest
• Independence of the board
i.e. the relative strength of independent directors vis a vis the non independent directors
on the board of the company and,
• Diligence of the board
i.e. the extent to which independent directors are diligent in their duties, reflected in the
regularity of their attendance at scheduled board meetings.

5. HOW TO ENSURE INDEPENDENCE OF ROLE
• Avoid Long association with the company least you may be seen as company insider
• Deprives the board of fresh thinking and the board continues to be guided by the wisdom of the
same person.
• Ensure involvement in the decision making of the committees like nomination committee,
renumeration committee and audit committee
• Conduct at least one meeting in a year without the presence of non IDs and the member of
management which is called ‘ Separate meeting’ with the objective to discuss and evaluate
the performance of the company, its chairperson and other directors
• Seek clarifications or justifications
• Undertake appropriate induction and regularly update and refresh their skills, knowledge and
familiarity with the company
• Ascertain and ensure that the company has an adequate and functional vigil mechanism

6. HOW TO ENSURE INDEPENDENCE OF ROLE
• Ensure concerns about running of company are recorded and addressed by the Board.
Suggest remedial steps and ensure proper implementation
• 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
• Report concerns about unethical behavior, actual or suspected fraud or violation of the
company’s code of conduct or ethics policy
• SUPER WATCHDOG - who has to ensure that those in the day to day management
(including all Directors on the Board) are functioning in the best interest of the
stakeholders, minority shareholders, regulators, workers, customers and public at large

7. PRACTICAL DIFFICULTIES
• Selection Process
• Promoter has the final say in the appointment of independent directors.
• Role of independent director in itself is paradoxical
• He independently needs to monitor the activities of individuals who appoint him.

8. EXAMPLE : INFOSYS
Board of
Directors (9)
Executive
Directors (2)
Non
Executive
Director (1)
Independent
Directors (6)

9. ROLE OF INDEPENDENT DIRECTOR IN BOARD MEETING (1)
Board Meeting Agenda:
• Collaborate with the Chairman and Corporate Secretary to set Board meeting agenda
• Ensure that matters of concern or interest to the independent Directors are appropriately
scheduled for discussion at Board meetings.
Board Meeting Schedule and Special Meetings:
• Provides input to the Chairman as to an appropriate schedule of Board meetings and
shall have the authority to call special meetings of the Board.
Chair Board Meetings:
• The Lead Independent Director shall chair Board meetings in the absence of the
Chairman
• Provide feedback to the Chairman and others, as appropriate, from such meetings.

10. ROLE OF INDEPENDENT DIRECTOR IN BOARD MEETING (2)
Authoritative Role:
• They can raise questions concerning the quality, quantity or timeliness of the flow of
information from management to the Board or concerning the performance of the
Chairman
Evaluation of Management Performance:
• The Independent Director, together with the full Board, evaluates the performance of the
Chief Executive Officer/Chairman and will meet with the Chief Executive
Officer/Chairman to discuss such evaluation.

11. ROLE OF INDEPENDENT DIRECTOR IN BOARD MEETING (3)
Performance: The Independent Director should scrutinize the performance
of management in meeting agreed goals and objectives and monitor the reporting of
performance
Conflict of Interest:
• The Independent Director shall guide the Chairman and the Board on matters of good
governance, particularly where there may be a perceived conflict of interest.
• In instances where the Chairman may be perceived to be conflicted, the Lead
Independent Director shall have the power and authority to lead and co-ordinate the
activities of the Board.

12. THANK YOU !!