Independent directors: time to introspect, suspect, respect – an Indian perspective

Abstract

Purpose

The purpose of this paper is to understand the culpability of independent directors (IDs) in a public listed company under clause 49 of the listing agreement of the Securities Exchange Board of India, which, primarily, is the corporate governance mandate in India.

Design/methodology/approach

This paper has been developed on the basis of intensive interviews conducted with 16 legal experts working with 50 top listed companies and seven advocates from the Delhi High Court and the Supreme Court of India, literature survey from research papers, bare acts and policy guidelines on corporate governance by the Government of India.

Findings

Two contrary opinions are being rendered on the culpability of IDs. The first proposes a strict and absolute penalty on all directors which would deter them from colluding with promoters. The second proposes that IDs should not be tarred with the same brush unless conclusive evidence of collusion is produced. These contrary opinions are herein analyzed and recommendations put forward.

Research limitations/implications

The research paper attempts to study only the culpability of IDs. It envisages the appointments of IDs onto boards without deliberation on the issue assuming that these appointments are made in good faith and trust.

Originality/value

The research paper attempts to study whether the IDs who are non‐executive directors and who do not have a pecuniary relationship with the company actually share a fiduciary relationship with the shareholders and observe the principle of conflict of interest. There are some compelling reasons for them to alienate liabilities given the dramatic effects of financial disarray as in the case of Satyam.

Citation

Aggarwal, R. (2010), "Independent directors: time to introspect, suspect, respect – an Indian perspective", Journal of Indian Business Research, Vol. 2 No. 2, pp. 123-132. https://doi.org/10.1108/17554191011050299