Independent Directors: Codified? Part 2

This is a special series on the Parliamentary Standing Committee's recommendation of a Code for Independent Directors in the Companies Bill 2009.

Should the law create two classes of Directors and can a Code protect against real conflicts of interest i.e. related party transactions. India's Companies Act, 1956 recognises Executive and Non-Executive Directors. The concept of Independent Directors was introduced, defined and regulated by SEBI in its listing agreement. The Companies Bill, 2009 is the first attempt to legislate the definition, role and responsibility, tenure, remuneration and liability of an Independent Director. Joining us in the second part of this Independent Director Special Series- Bharat Doshi, Executive Director at Mahindra & Mahindra, Rakesh Khanna, who was former Country Head with Warburg Pincus and now setting up his own fund-Arka Capital Advisors and Cyril Shroff, Managing Partner at Amarchand Mangaldas. You will also hear, through the course of this show, the views of Adam Emmerich, Senior Partner, Wachtell Lipton who I spoke with earlier to this discussion. Below is a verbatim transcript of the interview. Also watch the video. Shroff: Except for certain purposes for public markets, why should you create a concept in the Companies Act of Independent Directors and not- Independent Directors because you are implicitly thereby setting a different set of rights, obligations, and expectations from these two polls. So you are creating a sort of Brahmin class and a Kshatriya class in the company which necessarily means that their roles and responsibilities, in relation to the enterprise, are different. Then you will have to get into the question of if the roles and responsibilities are different, are their powers any different and are their liabilities any different. So, you have created effectively a two tier system which is not consistently thought through and which might actually carry consequences that for certain purposes they are the same and for certain other purposes they are not. So what are you going to make a Code for? Is it really a Code for regulating best practice, is it a Code for how the appointment, remuneration that mechanism is going to work which was otherwise there in the listing agreement in the definition of independence or talking of a nominations committee. So I don