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Not a solution

A test will not ensure accountability of independent directors

Topics
corporate governance | Jet Airways crisis | Kingfisher Airlines

Business Standard Editorial Comment 



has rarely been India’s strong point, and the recent past has reminded investors of this weakness with startling frequency. Especially noticeable is the failure of the checks and balances vested in the institution of the independent director. From Satyam, Kingfisher Airlines, ICICI Bank, Jet Airways, and IL&FS, independent directors have shown themselves to be ineffectual or somnolent witnesses to gross irregularities by promoters and managements. The government’s proposal to tackle this widespread failure of due diligence and ethics is unlikely to change things significantly. From December, it has decreed, the Indian Institute of Corporate Affairs will administer an online qualifying exam — with a 60 per cent pass mark — for independent directors who sign on with listed and unlisted companies with paid-up capital of more than Rs 10 crore (the rule excludes those who have served as director for 10 years). It has also mandated that annual reports must include the test scores and the board’s comments on the integrity, expertise, and experience of its independent directors. These proposals are problematic from both the practical and ethical standpoints. For one, what level of “proficiency” will this exam be testing? The basics? Or an advanced understanding of corporate law and balance sheets? Second, how can a board of some of its own members be relied on as credible proof of proficiency? Third, qualifications are the least of the problem.

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First Published: Mon, October 28 2019. 23:16 IST

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