Reputation at stake? 340 independent directors quit in 2009
Press Trust of India / New Delhi May 14, 2009, 15:54 IST
India Inc saw as many as 340 independent directors resigning from their positions so far this year, fearing that their reputation might be at stake if the company fails to live up to investors' expectations.
"Independent directors know they are not in control of happenings in the company. Post-Satyam they are apprehensive about their role and resigning from their positions," Prime Database Managing Director Prithvi Haldea said.
According to data compiled by the directorsdatabase.Com, about 340 independent directors have resigned from various listed companies so far in 2009.
Independent directors are now getting overtly cautious about taking up responsibility as they are unable to voice their opinion against the founders decision.
"It is a paradox like situation where the independent directors are actually dependent on the promoters as their jobs are in their hands.
So even if they raise objection it does not get reflected in the company decisions," Haldea noted.
Echoing similar views, SMC Capitals Equity Head Jagannadham Thunuguntla said: "Independent Directors are appointed to protect minority interest. If they resign, investors can take it as a signal that they have a sense of discomfort with the functioning of the company."
The role of independent directors came into limelight when Satyam founder B Ramalinga Raju made a $1.6-billion bid to acquire a firm promoted by his kin. The deal attracted investors ire and regulators questioned the role of independent directors.
"Till Satyam, they used to take sitting fees and remained on the boards of 4-5 companies without proper knowledge of their functioning.
But now they are preferring to forego their fees rather than tarnishing the reputation they have built over a period of years," Haldea added.
Experts said it is high time regulators steer clear and define the role and responsibilities of independent directors and also outline the penalties that would be imposed if they fail to fulfill them.
A recent KPMG poll also highlighted the need for greater empowerment of independent directors.
"So long as we continue to have a process wherein independent director appointments are largely driven by promoters, empowerment of independent directors and protecting minority shareholder interests will continue to be areas of concern," KPMG (India) COO and Head of Advisory Services Richard Rekhy said.
"... It may be time for formation of an independent body which may be funded by listed companies and whose primary objective would be to ensure registration of all independent directors.
"This would ensure that all companies requiring to appoint independent directors have access to one common platform which would match skill sets to their requirements," Rekhy added.
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