Independent
directors are the cornerstones of good corporate governance.
Theirs is the duty to provide an unbiased, independent,
varied and experienced perspective to the board. Corporate
scandals of ENRON & Worldcom have revealed how
this independence has been compromised by a cosy relationship
between the CEO even with the so-called independent
directors.
The
chairman of the audit committee of ENRON was no less
a person than the Dean of Stanford Business School.
Yet he could not spot the murky goings on in the company?
The same has been true of auditors. Why auditors of
the status of Arthur Andersen allowed the deception
to continue? In both cases the independence was compromised
by expectation of excessive rewards. Should we not
draw lessons? When a director has developed a stake
in a company to the tune of 10-15 lacs a year, would
he be able to risk it all by going against the current?
This is a hard bat to knock.
We
must not forget that we are talking of corporate India
where a vast majority of listed companies have destroyed
shareholder's value. A survey by the Society for Capital
Market Research & Development indicated that of
the 6330 BSE listed companies only 21.5% had paid
dividend in 2002-2003. Of all the 9644 listed companies
only 16% are dividend paying. 83% of the listed companies
in B2 Group, T Group and Z Group have destroyed shareholders
value.
A
solution to eliminate, the cosy relationship between
independent directors and their companies can be found
by creating an independent body under SEBI. It is
this organisation which will be charged with the role
of screening and recruiting independent directors
and placing them with listed companies. All fees and
allowances to the independent directors are paid by
the independent organisation under SEBI. The organisation
should be funded through a special levy charged by
SEBI from each listed company based on the turnover
of the company.
In
the selection of independent directors we must not
look simply for high profile names. The issue is not
of lending a brand but having some one with an independent
state of mind. In an economy fired by innovation,
our biggest threat is obsolescence. Periodic training
of directors is a must. Unfortunately there are few
courses designed primarily for directors. Warren Buffet
recently lamented about the failure of independent
directors to protect the interest of shareholders.
He blamed the cosy "boardroom culture" with
"well-mannered people" finding it almost
impossible to suggest replacing the chief executive.
He said that questioning their remuneration would
be like "Belching at the dinner table".
Independent directors are our only hope to instill
some discipline in the murky world of corporate finance.
We have to make sure that greed plays no part in their
appointment - even if it means "belching at the
dinner table".
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