Myth Of Independence Of Independent Directors:

It is increasingly being recognized that the independent directors have a significant role to play in the
progress of the company. [25] This is based on the presumption that they are independent and not in any
way affected by the promoters. The independence of independent directors is one of the questions which
have come to the forefront time and again. It has been a subject of heated debate as to whether the
independent directors are to contribute to the development of corporate strategy, reviewing the
performance of management or whether their primary role is to protect the interests of the public
shareholders by opposing questionable management policies and establishing adequate controls against the
promoters and the management. The institution of independent directors was supposed to act as a bulwark
against any opportunistic indiscretions that could be committed by the promoters and the management.
This was done to promote investor protection through integrity and accountability. However, looking at the
provisions relating to independent directors especially in the Listing agreement, the independence of
independent director is highly jeopardized. This can be seen by looking at the various aspects with regard
to the independent directors.
The first factor is with regard to the selection of the independent directors. As far as appointment of an
independent director is concerned there is no selection procedure which has been spelt out by any
committee or statutes worldwide. The committees have made an attempt to identify the number of
independent directors who can be designated as the independent director in the board but to question as to
how these members are selected was not addressed. [26] There has been a lot of importance given to the
word independence of an independent director but the selection of the independent directors lie in the
hands of the owners of the company or they are directly handpicked by the promoters. It is seen the
promoters in control take decisions that they may not be in the interest of small shareholders, an
independent director must keep in mind the interest of all stakeholders. [27] This factor therefore is
considered a severe blow to the very basis of the concept of independent directors. It therefore raises a
serious conflict in impartial and independent discharge of duties by the independent director. Therefore,
there needs to be proper criterias which needs to be laid down and such criteria must be disclosed at the
annual report for the shareholders to have a view regarding it. [28]
Another aspect is that an independent director is a part timer and therefore is not able to function in an
efficient manner. It is seen that an independent director spends only about 18 to 20 hours a week on board
meetings of the company. An independent director has no right to interfere in the day-to-day operations of
company. They are supposed to support the management in getting the delivery of what the objectives of
the company are to its shareholders. If a director cannot get into a companys day-to-day operations, he
cannot understand how it is governed and will not be in the position to fulfill his responsibilities. The main
source of information is the Chief Executive Officer and it is his performance they are supposed to be
monitoring. There is no separate law under which an independent director operates. [29] In other words, he
has no legal protection from the management so that he can raise his voice fearlessly. For the involvement
of independent director in day-to-days operations of company they must be given authority so that they can
intervene in the day-to-day operations of company and may be able to raise their voice. The corporate
governance norms expect a lot from an independent director. Taking into consideration the fact that he is
only a part timer, he falls acutely short of his time and is not able to perform his functions. It cannot be
reasonably accepted that a person who is appointed by the owner will not have any allegiance to the person
by whom he is appointed

Many independent directors are not technically and professionally qualified to head the committees they
chair in the companies. It is seen that usually a person who is selected as independent directors are
generally a person of high repute. However, there is no specific qualification that is laid down for the
appointment of independent directors. The only eligibility criterion which has been laid down in the clause
49 of the listing agreement is based on negative prescriptions. The criteria which have been laid down is
that they should not have a material or pecuniary relationship or should not be related to the promoters or
be an executive in the company for the preceding three years. [30] Therefore, there is not a list of positive
qualification that has been laid down which would be considered appropriate for the role. The definition
also ignores the fact that even eminent persons who are normally selected are associated with the board.

Conclusion:
Therefore amendment to the clause is no doubt a giant step taken to improve corporate standards in India.
The appointment of independent director will no doubt lead to better governance and also help in the
proper functioning of the company. However, to meet the objectives of corporate governance, the clause
has to be further elaborated and the focus should be on the independent director being completely
independent from the promoters. Therefore it is seen that the current legal framework makes a little effort
to assess whether an independent director remains independent after his appointment. The eligibility
criteria lacks laying down any relevant standard of professional competence that may be required to
exercise oversight over the affairs of the management. In this context the clause should clearly have
provisions regarding the minimum acceptable eligibility criterion that is required for the post of
independent directors. The selection should be based on transparent and on certain valued basis. There
should be an entirely different nomination committee in the company which should identify and evaluate
candidates for nomination to the Board as independent directors.