Are independent directors sleeping at the wheel?Published on Tue, Dec 30, 2008 at 16:34 | Source : Network18 business magazine Updated at Wed, Dec 31, 2008 at 16:22
Neelima Mahajan-Bansal and Malini Goyal
A share buyback or a recast of the board, which Satyam is planning, may end the current turmoil but will still leave the larger question unanswered: Just what did these eminent people who sit on Satyam's board as independent directors do when the promoters were trying to push through the deal? Did they oppose or acquiesce? Did the management mislead them? Satyam's case is neither unique nor the worst case of boardroom indifference in But as "Historically in It was for this reason that the Securities and Exchange Board of India (SEBI), the markets regulator, stipulated that at least half the board must have independent directors. These outside directors should be able to provide the counter-balance to the zeal of the promoter family and protect the interests of minority shareholders. But even as companies started recruiting independent board members to comply with the SEBI directive, the culture of docile boards did not go away. Poonam Barua, director of PAMASIA Global Corporate Advisory, has served on several boards as an independent director. She says Even where a sound framework for governance exists, the lack of adequate preparation and information makes the board meetings more of a ritual. Independent directors need a lot of advance information and time to prepare for a debate. But they hardly get them. Barua says many companies don't seem to involve independent directors in setting the agenda for board meetings. The CEO or chairman decides the agenda. Globally, companies go out of their way to accommodate the entire board in agenda setting, often using Webcasts to reach out to people half a world away. But in Companies often slip in providing full information to independent directors. Some companies don't take them as seriously as they would consider executive directors or those associated with the promoter family. "If you are not there every day, it's not easy to get information," says Kumar. He says he joins boards of only those companies which treat independent directors at par with the rest of the board. He rejects other offers. "The failing is that we don't see independent director's role in some companies. The board of directors is not seen as serious policy making body." A prominent US-based management professor who sits on many boards in For the system of independent directors to work better, there is also a need to raise average remuneration paid by the companies, say experts. Some top companies pay their directors handsomely, but most others don't. The typical Indian company pays anywhere between Rs. 10,000 and Rs. 20,000 per meeting. "The problem in For examples of good corporate governance, companies need not go far. There are a handful of examples from within There are quite a few occasions where boardroom debate prevented a company from undertaking a risky adventure. Earlier this year, the management of GVK Power & Infrastructure wanted to enter telecom tower business. But it was dissuaded by the board from doing so. Having Pradip Baijal, a former chairman of Telecom Regulatory Authority of India, in the board helped in appreciating the peculiar risks of that business. "The management obviously knows more about the day to day running of the business, but boards can surely provide direction," Sanjay Reddy, vice-chairman of GVK group, says recalling that board meeting. Neelima Mahajan-Bansal is Special Correspondent and Malini Goyal is Associate Editor at the new business magazine to be launched by Network18 in alliance with Forbes. Associate Editor Cuckoo Paul contributed to the story.
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