The Concept of Independent Directors

Companies are artificial person, its intangible & invisible nature makes it very fundamental and mandatory to appoint some person through whom it may act, function and operate its business. Such persons are called the DIRECTORS of the company; they are the human agency for carrying the company’s business¹. Commenting on this Viscount Haldane L.C in Lenard’s Carrying Co. Ltd v. Asiatic Petroleum Company observed- “A corporation is an abstraction. It has no mind of its own any more than it has a body of its own; it’s active and directive will must consequently be sought in the person of somebody who for some purpose be called the agents, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.”² The varying business environment has also brought changes in the company’s director structure. The biggest Satyam scandal in the Indian corporate history attracted significant attention to scrutinize the standing, position and responsibility of the independent directors. ³. Unlike the Companies Act 1956, the Companies Act 2013 lay much emphasizes on the concept of the independent directors (IDs). One key reason for the proliferation of the role of the IDs is to ensure proper implementation of the corporate governance (CG) and the novel legally applied concept of Corporate Social Responsibility (CSR). The recent crisis in the field of CG has focused the attention upon the role of the IDs, the theory underlining the need of more IDs is that “individuals who are unconstrained by potential conflicts of interest will bring the sort of rigor and critical analyses are required to limit recurrences of the debacle we have seen and restore investor’s confidence.”⁴ There increased presence in the boardroom and strengthen role has been very effective which will help in preventing the frauds and mismanagement, inefficient use of resources, inequality and unaccount-ability of decisions; and as a indication for striking the right balance between individual, economic and social interests.⁵