Introduction to Independent Directors
Independent Directors are appointed as per Section 149 of the Indian Companies Act 2013. Independent Directors are elected to the Board by the virtue of expertise they bring in and otherwise add value to the organization. As also the terms related to re-appointment, retirement, remuneration, etc are determined under this section of the Indian Companies Act 2013.
The Independent Directors also act as key members of the various committees of the Board as laid out under the Companies Act 2013. Independent Directors form an integral part of an organization and strive to emulate by adding value through various good governance practices.
Preliminary Assessment of Independent Directors
The Ministry of Corporate Affairs in India has recently mandated to conduct a preliminary assessment of Independent Directors. The assessment will test the knowledge in the fields of Corporate Laws, Security Laws, Accounting, etc, and help ensure to stay abreast of any changes accordingly. The objective of the mandatory assessment is otherwise to create a skilled and talented team of professionals acting as Independent Directors of the Board.
The mandate, however, exempts individuals with ten years of experience in a listed company or an unlisted company with the paid-up capital of ten crores.
The concept of preliminary assessment to test the mantle of individuals acting as Independent Directors otherwise needs an overhaul while adhering to the best of corporate governance practices.
The same can instead be organized through Board familiarisation programs, workshops, seminars and thus strive to retain the talented pool of professionals in the Board.
Independent Directors in Boards and Committees
An individual is engaged to understand the nuances of the organization's goals and objectives whilst adhering to statutory requirements set by the Act and the same falls under the ambit of Corporate Governance.
An Independent Director is provided with an opportunity to be nominated as a member of any of the key committees as per the Act. Some of the committees include like Audit Committee, Stakeholder Relationship Committee, Nomination, and Remuneration Committee, Risk Management Committee, Corporate Social Responsibility Committee (CSR Committee), etc.
Under these committees, an individual may be either a member or act as a Chairman of the Board. Hence such an exposure to the committees otherwise gives wide scope for an individual to grow and contribute immensely to the business objectives and thereby comply with necessary regulations as stipulated by various acts.
As also the organization would get an opportunity to understand from the director's perspective regarding the innovative measures, channels for growth through regular interaction/meetings to meet the business objectives.
Independent Directors Databank and Directors Identification Number
Independent Directors Databank is a new tool to create a repository of professionals nominated as Independent Directors mandated by the Ministry of Corporate Affairs. The databank acts as a repository to track the individuals registered to undertake a preliminary assessment.
As also a Director's Identification Number (DIN) is assigned to every director nominated on the Board.DIN may further be integrated with the databank to act as a tool to track the individual's training and upskilling developments.
DIN thus can act as a key resource to track the individual's development and progress.DIN may help to identify a person's readiness to adapt to the framework as stipulated by the Act in a timely manner and also helps to adhere to the organization's goals and objectives.
Board Familiarisation Programs For Independent Directors
Upskilling an individual qualified for the post of an Independent Director is the need of the hour for many organizations apart from conducting preliminary assessment tests as mandated by the Ministry. However, conducting a preliminary test in an era of rapid technological changes and in a fast-paced learning environment is unviable.
In lieu of the preliminary assessment test, an innovative Board familiarisation program may be adopted by the organizations to dwell upon the nuances of Corporate Governance along with necessary laws and regulations.
An individual through such innovative programs, on the other hand, will get an opportunity to adapt to organizational culture, develop networking skills, understand the organization structure, become familiar with necessary regulations, and thus contribute extensively as an Independent Director to the Board.
Besides Board familiarisation programs, an opportunity to take part in statutory meetings like Annual General Meetings, industry meetings, workshops, and seminars conducted on behalf of an organization would help an independent director to keep abreast of the latest developments and thus hone skills required for the position.
Thus the preliminary assessment test as mandated by the Ministry of Corporate Affairs may further be streamlined with innovative measures such as Board familiarisation programs, integration with DIN, workshops, seminars. The same may also be integrated with a DIN to track the progress of an individual.
Independent Directors will get an opportunity to interact within the organization through various committees, meetings, interactions, and workshops conducted exclusively for the benefit of their upskilling. The same may be set up as the best practices under the ambit of Corporate Governance standards and thus meet the requirements as per the statutory and organizational framework.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.