Independency Of Director -Myths and Realities
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Transcript of Independency Of Director -Myths and Realities
INDEPENDENCE OF DIRECTOR INDEPENDENCE OF DIRECTOR
Myth or Reality
Pavan Kumar Vijay
Concept of Independent DirectorConcept of Independent Director
Independent director means a director who is not connected or associated with the company in any manner and works only to safeguard the interest of members who individually cannot look after their interest.
GenesisGenesis
The concept of Independent director has been originated to drive the companies towards inculcating the concept of corporate governance in their management.
What is Corporate Governance???
Corporate Governance rests with the Vision and Perception of the Leadership
and
A Leader need to adopt a Vision for Corporate Governance
Corporate Governance FrameworkCorporate Governance Framework
Output – Input = Wealth Created ?
Sustainability
Happiness andProsperity of all
Stakeholders
Reinvestment
Distribu- tion
Research and DevelopmentHR DevelopmentInfrastructureRisk Management
SUPPLIERS Adequate ReturnsHUMAN ASSETS Adequate RemunerationCUSTOMERS Affordable PricesPUBLIC Payment of Taxes and Partnership in National Development Projects
Wealth Creation Wealth Management Wealth Sharing
EnhancedCapabilities
Best Management Practices are Vital Here Law and Ethics are Vital Here
Stakeholders in Value ChainStakeholders in Value Chain
SUPPLIERS CUSTOMERSHUMAN RESOURCE
Supply Funds, Materials and Services
Value Addition and Management of Resources
Give Opportunity to Co. to Satisfy their Needs
Adequate Returns for Funds, Material and Services Supplied
Adequate Salary and Security for leading a Happy Life
Best Quality Products and Customer Care at Minimum Prices
ROLE OF STAKEHOLDERS
EXPECTATIONS OF STAKEHOLDERS
Potential Suppliers, Human Resources and Customers
Biological, Economic and Cultural EnvironmentPUBLIC
PUBLIC EXPECTS PARTNERHIP FOR SUSTAINABLE DEVELOPMENT
Principles of Corporate ExcellencePrinciples of Corporate Excellence
Fairness to all stakeholders
Mutual Trust, Transparency and Togetherness
Unrestricted Communication and Continuous Feedback
Sharing Knowledge, Success Stories and Experience
Sharing Happiness and Concerns
Helping Each Other – Round the Clock
Infact, these principles are the foundation of
Best Governed Organisations
irrespective of their form and size
Advantages of applying Best Corporate Governance Practices
Growth
Growing Revenues
Growing Profits
Growing Market Value
Widespread Goodwill and Brand Reputation
Access to Global Markets
Better Access to Human Capital
Ready Market for New Products
Widening Customer Base
Enhanced Trust and Confidence of all
Stakeholders
EMPLOYEESEMPLOYEES
INVESTORSINVESTORS CUSTOMERSCUSTOMERS
SUPPLIERSSUPPLIERS
GOVERNMENT AND REGULATORS
GOVERNMENT AND REGULATORS
SOCIETYSOCIETY
Leading to…
Environment
Civil SocietyBusiness Society
SUSTAINABLEDEVELOPMENT
Commitment to well-being and progress of all stakeholders is our age old mantra
Satyam Vada Dharmam Chara
- Taittariya Upanishad
“Forever speak the truth and follow the
dharma”
Truth : Disclosure of Actual State of Affairs
(Transparency in operations and transactions)
Dharma : “Dharma is for the stability of
society, the maintenance of social order and the general well-being and progress of humankind.”
- Karna Parva of the Mahabharata. Verse-58 in Chapter 69
Governance Concept in ‘Ramayana’Governance Concept in ‘Ramayana’
To provide “the maximum happiness for the
maximum number of people for the maximum
period, based on the principles of Dharma –
righteousness and moral values.”
- Ayodhya Kand
“The Customer is King”
- Mahatma Gandhi
This is the soul behind modern
Marketing Management
Worshipping 33 Crore Godheadssignifying various species, plants,
cosmic elements, …
Care for Panchtatvas - Prithvi, Jal, Vaayu, Akaash and Agni that make a human
being
This is our approach to
Environment Protection
The four essential principles of Mahatma Gandhi's philosophy
Truth, Ahimsa, Trusteeship and Constructive Action
Corporates are also expected to use their
Capacity, Knowledge and Resources
Maximisation of stakeholders’ value and well-being and progress of humankind
TOWARDS
THROUGH
Transparency, accountability and truthful disclosure of state of affairs
Dharma
Truth
This is our own age old mantra of
Good Governance
Companies that have followed theseprinciples of
Corporate Governancehave
Consistently earned high returns, increased their net worth and
enhanced their shareholders wealth
Invested significantly in proactive research and development
Developed people into ‘achievers’ than just ‘performers’
Dealt ethically with customers, government and business partners
Maintained and updated their professional management culture, system and processes
..and accomplished
WINNINGEMPLOYEES
WINNINGEMPLOYEES
GROWINGINVESTORS
GROWINGINVESTORS
DELIGHTEDCUSTOMERS
DELIGHTEDCUSTOMERS
TRUSTEDSUPPLIERS
TRUSTEDSUPPLIERS
SATISFIEDGOVERNMENT AND
REGULATORS
SATISFIEDGOVERNMENT AND
REGULATORS
HAPPYSOCIETY
HAPPYSOCIETY
“ Corporate Governance is the application of best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders.”
- The Institute of Companies Secretaries of India
Independent Director???
Definition of Independent Director – Clause 49 (1)(A)(iii) of Listing
Agreement
Definition of Independent Director – Clause 49 (1)(A)(iii) of Listing
Agreement
He has not been an executive of the company in the immediately preceding three financial years
He is not associated with the statutory audit firm or the legal firm having material association with the company.
He is not related to promoters or persons occupying management positions at the board level or at one level below the board
He does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates.
He is not a material supplier, service provider or customer or a lessor or lessee of the company.
He is not owning two percent or more of the block of voting shares
Appointment of Independent Director
Appointment of Independent Director
An Independent director can be appointed by passing a Board resolution or Ordinary resolution in the General Meeting of the Company.
Duties & Responsibilities
“Duty is what we expect of others”“The price of greatness is responsibility”
Duties & Responsibilities
“Duty is what we expect of others”“The price of greatness is responsibility”
• As Present directors• As Past directors• As Members of Audit Committee• As Explicit and implicit• Responsibility for subsidiaries
Duties & ResponsibilitiesDuties & Responsibilities
Primary Duties:
• Act in the best interests of the company• Safeguard the interests of the stakeholders• Attend Board Meetings and participate in
decisions• Avoid conflict situations• Not seek personal gains • Maintain confidentiality• Fiduciary duty• Discharge duties required in specific committees
of the Board
Enhanced Responsibilities & Duties
Enhanced Responsibilities & Duties
● To compel directors to act in accordance with the strict terms of their mandate
● To compel them to exercise care and skill in carrying out their various functions
● To compel them to use their wide discretionary powers in good faith and proper purpose, &
● Finally, to compel them to act loyally in advancing the interest of their company.
Is an independent Director as a member of the Company Board equally responsible as the Company Board ?
Is an independent Director as a member of the Company Board equally responsible as the Company Board ?
No, unless he, the independent director, is charged with a
specific responsibility.
AN IMPORTANT QUESTION
Rights & AuthoritiesRights & Authorities
• Right to be sent the notice of every Board Meeting of the company in advance as per the Articles.
• Right to be sent the agenda of every Board Meeting of the company in advance as per the Articles.
• Right to be appointed on various committees like Audit Committee, Remuneration committee, Shareholder Grievance Committee etc.
• Right to vote on every matter brought before the Board of Company
• Right to get minutes of the Board Meeting
MYTHS…
MYTHS-Qualities of Independent Directors
MYTHS-Qualities of Independent Directors
Independent directors should have– Unbiased attitude– Highest standards of personal integrity– Excellent judgment and an ability to make
informed decisions within time constraints– Professional credibility– Capacity to think strategically– Demonstrate sound communication skills– Sound interpersonal skills – Team orientation
• Protection of minority interest• Impediments to cross border voting will be
removed• Insider trading and abusive self-dealing will
be prohibited• Board members and KMPs will be compelled
to disclose their interest in material contracts
MYTHS-Presence of Independent Director means…
MYTHS-Presence of Independent Director means…
MYTHS-Presence of Independent Director means…
MYTHS-Presence of Independent Director means…
• Employees participation in management: performance enhancing mechanisms will be promoted
• Whistle-blowers’ interest will be protected• Creditors’ rights will be protected through
security interest enforcement and bankruptcy laws
REALITY…
RealityReality
• Makes the Board of Directors broad based
• Inculcate professionalism in the working of the family businesses
• Brings more transparency in the functioning of the Board
• Enhance investors’ Confidence
Guidance for Independent Directors –The Taste and Smell Tests
Guidance for Independent Directors –The Taste and Smell Tests
• Reputation of company• Capability to meet the requirements and
expectations• Demonstrate independence• Whether the company has adequate controls and
whether they can be relied upon• Ability to resist pressure• Knowledge on current developments• Aware and abide by corporate code of conduct• Seek expert help• Prepare in advance for Board Meetings• Maintain Confidentiality