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| Roles of independent directors exposed | |
| BS Reporters / New Delhi January 08, 2009, 0:15 IST | |
 Independent directors on the boards of many companies across various sectors said their roles remained relevant despite the Satyam episode. They also acknowledged however, that their fees (remuneration) had increased substantially over the last few years, which could prompt individuals to overstay in organisations. Besides, some felt that not much should be expected from them, especially if the auditors fail in their duty to detect financial frauds.
"Even the best independent director of a company cannot detect a fraud if the auditor cannot detect it. And most independent directors are not involved in the workings of a company for more than 15 days," said Omkar Goswami, founder and Chairman of Corporate and Economic Research Group (CERG) Advisory Private Limited, and an independent director of companies such as Infosys, Crompton Greaves and Godrej Consumer Products. B Ramalinga Raju, founder and chairman of Satyam Computer Service, today resigned, admitting to falsifying accounts and assets by overstating revenues and profits while understating liabilities. But this was just another nail in the coffin.
Following the aborted deal, he resigned from the committees set up to elect the deputy governor of Reserve Bank of India (RBI) and chairman of the Securities and Exchange Board of India (Sebi). He had also quit as a member of the Telecom Regulatory Authority of India (Trai).
"The role of the independent director is basically a myth. Their only role in the company is to protect the interests of the minority shareholders vis-a-vis the promoters," said Prithvi Haldea, promoter of primary market-monitoring firm Prime Database, and an independent director of Nucleus Software Exports.
"Also, there is no age limit or qualification required for an independent director and they are usually not tuned in or technically equipped to be aware of such issues, hence one should not expect anything from them," he added.
An independent director in over half-a-dozen companies, Gurcharan Das, former CEO of Proctor & Gamble, concurred: "It is an impossible job for an independent director to penetrate the company from outside. Unless the independent director doesn't get deeply involved with the activities of the company, such kind of malpractice cannot be detected."
Some of the independent directors said that when a noted auditor like Price Waterhouse could not detect the scam, it was useless to expect them to be aware of it. They felt that given the current scenario in which an attractive remuneration is the only draw for many to join companies in that position, firms should lay down clear-cut policies specifying the role of an independent director and that the Company Law should be amended so that an individual is not allowed to assume the directorship of more than 7-8 companies.
"In the last three years, the fees or remuneration of an independent director has grown so substantially that an individual is often tempted to have an extended stay in the organisation. Most of these directors would go by the decision of the promoters of the company without examining the details a company," said S L Rao, who is an independent director for companies such as Reliance Infrastructure, Reliance Power, Reliance Natural Resources and Kanuria Chemicals and Industries. Rao added that a company should have a clearly laid out policy where there should be a specified tenure and age limit of an independent director.
R C Bhargava, chairman, Maruti Suzuki (also independent director on many boards of companies) admitted that "the Satyam episode has tarnished the image of independent directors at Satyam" but added "it has not diluted the objective of having an independent director". He, however, wondered how the internal audit committee (mostly populated by independent directors) could have missed the irregularities.
A few directors, however, said the very role of an independent director needs to be more specified and an individual should not be allowed directorship of more than eight companies.
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