NEW DELHI: Indian industry should play a pro-active role in shaping the institution of independent directors as one of vigorous and vibrant limbs of corporate governance, former chief justice at the Supreme Court R.C. Lahoti said today.
Independent directors can revolutionise the functioning of corporates and ensure that they become good corporate citizens contributing to the growth of nation, he said while inaugurating a national conference on Corporate Compliance – Role of Independent Directors – Issues and Solutions organised here by apex chamber ASSOCHAM.
Mr Lahoti said corporate governance is about striking the balance between economic and social goals, and between individual and common goals. The governance framework is there to encourage efficient use of resources and accountability of those managing them.
The evolution of the institution of independent directors has somewhere some link or something to do with the concept of corporate social responsibility, said Mr Lahoti. An independent director can counter-balance management weaknesses in a company, and ensure legal and ethical behaviour at and by the company.
India is on the threshold of adopting a new Companies Act which has shareholder rights and democracy as its cornerstones. The Companies Bill envisages a much bigger role for independent directors as they are seen as a crucial link between promoters / management on one hand and minority shareholders / stakeholders on the other.
Ms Preeti Malhotra, chairperson of ASSOCHAM’s committee on corporate governance, said the roles and rights of independent directors – especially the right to demand information – should be clearly defined. A knowledge test should be applied to determine the liability of independent directors.
If an independent director does not initiate action upon knowledge of any wrong doing or irregularity which may come to his knowledge or is attributable through board processes or with his consent or connivance, she said, then such director should be held liable. They must not be held liable for day-to-day affairs of a company and if they have acted diligently.
Ms Malhotra said the presence of independent directors is must in audit committees on financial and non-financial matters.
Among others present in the conference were Mr Neville Dumasia, executive director at KPMG in India, Mr D.R. Dogra, managing director and chief executive officer at CARE Ratings, Mr B.D. Narang, former chairman and managing director at Oriental Bank of Commerce, and Mr K.C. Mehra, former deputy managing director at Tata group companies.