The year saw a rise in the number of independent directors (IDs) whose terms came to an end, surpassing the number of new appointments for the first time in five years. According to primeinfobase.com, there were 2,465 cessations compared to 2,311 appointments last year. Experts suggest that the high number of cessations could be attributed to the renewal of terms for several independent directors who had initially signed up for five-year tenures in 2018-19.
In today’s scenario, individuals are being more selective about joining company boards, taking into consideration factors such as the company’s governance track record, litigation history, and whether the company is promoter-driven or professionally managed.
Governance issues have been at the forefront, with instances like the resignation of an independent director from Suzlon Energy citing corporate governance concerns leading to a decline in share value. Similarly, another independent director resigned from the board of VIP Industries due to differences in views on leadership and succession planning. M. Damodaran, Chairperson of Excellence Enablers and former SEBI Chairman, highlighted instances of IDs leaving boards due to non-compliance and questionable corporate governance practices.
Regulators are scrutinizing IDs more closely, evident from a recent case where eight individuals, including IDs, paid over ₹3.3 crore to settle regulatory violations related to One97 Communications (Paytm) with SEBI. Shriram Subramanian, founder and MD of InGovern, emphasized the importance of IDs being vigilant about fraud risks in the current market environment.
The role of IDs in fraud detection is crucial, as they are expected to question any wrongdoing along with auditors, being the first line of independent authorities. Directors are legally obligated to record dissent on board matters and can be held liable to legal action under the Companies Act and the Indian Penal Code.
Damodaran stressed the importance of having a strong board of directors that can ask the right questions, as resignations of directors often lead to tough inquiries. Bringing in high-profile advisors later to address credibility issues is not sufficient.
Overall, the landscape for independent directors is evolving, with a focus on transparency, compliance, and governance practices to ensure the stability and integrity of companies.
