Independent directors need to be more 'independent': report

There is a need for an objective debate within corporate India to make independent directors more effective and truly independent, an industry report said.

"It is important to address the challenges like the true independence [of independent directors], and their role in developing an institution and a pool of personnel with diverse skill sets who can provide exemplary board services and improve corporate governance as also take concrete measures to improve their functioning through a combination of orientation and adequate remuneration," a KPMG-CII report said.

The report on 'Corporate governance: Value beyond compliance', was released by Corporate Affairs Minister Veerappa Moily here today.

Calling for better accountability, the report said, "there is substantial room for improvement in enhancing accountability of the board members."

It added, "Within many board rooms, the topic of CEO succession is not often discussed. CEO succession planning calls for wider debate and rigorous processes than the ones currently followed, especially in owner-managed businesses."

The report further said there was a gap between corporate governance standards in the public sector and the private sector.

"PSUs are subjected to varying levels of government interference in their routine functioning, undermining their autonomy," it said.

"Restrictive and outdated labour laws make laying off employees and closing down businesses difficult. In FY11, about a third of the 249 PSUs collectively reported a loss of $3.4 billon," the report added.

Noting that investor activism, particularly by institutional investors, has increased after the recent financial crisis, the report stated, "Greater investor scrutiny could bring about substantial improvement in corporate governance. This is an important area where corporate India needs to catch up with the developed world."