'Independent directors need more liability cover'

There is a pressing need for more liability insurance for independent directors in the wake of corporate governance scandals such as Satyam Computer Services Limited, opined speakers at the second Asian invitational conference on ‘Family Business’ that concluded at the Indian School of Business (ISB) here on Sunday.

“There is no way for an independent director to know if the management is deceitful. Hence, I am asking for more liability insurance,” Roger King, professor at the Hong Kong University of Science and Technology, said.

“Hong Kong, which is ranked fifth by market cap with a total capitalisation of $2.124 trillion in 2007, has highly concentrated family ownership with 70 per cent of listed firms being family controlled and the rest state owned. And the primary reason for public listing here is reputation seeking Vs capital raising as they believe that reputable independent nonexecutive directors reduce IPO under-pricing,” he said.

“Could ‘truly’ independent, the INEDs have prevented the fraud committed by the chairman of Satyam Computer Services Limited,” he added.

Speaking on the topic ‘Your board – how independent is it?’, BVR Mohan Reddy, CMD of Hyderabad-based Infotech Enterprises, said as long as the mankind believes in greed and if it overtakes fear, scandals like Satyam will occasionally crop up.

“Treat board members as advisers and mentors rather than decorations. Create a shared purpose and right environment for the board to function, besides encouraging review of strategy rather than results and statutory issues. Pay well, but keep a balance,” said Nabankur Gupta, former president of Raymonds.

Rajesh Jain, chairman and managing director of power equipment maker EMCO, said post-Satyam scam, there is an acute shortage of good quality independent directors “Training and developing good INEDs is an area which should be seriously looked at,” he said.