Happy to add another feather to my cap …
… after Qualifying as an Independent Woman Director from the Ministry of Corporate Affairs, now certified in Environmental, Social & Governance (ESG)
INDEPENDENT DIRECTORS AND ESG
With the thrust on improved corporate governance and increasing adoption of ESG best practices worldwide, the role of the independent director in a company is coming under increasing scrutiny. From an ESG perspective, an independent director’s voice is usually the first unbiased opinion that a company hears to a crisis. In India, the role of an independent director continues to evolve. More importantly, the mindset with which an independent director is nominated and appointed to the Board of Directors continues to evolve too. Significant players in corporate India now expect independent directors to play an active role in governance and not merely be cronies of the promoter group. The seeds of change have begun to sprout.
India: ESG: What Independent Directors Must Know About ESG:
Understanding Independent Directors and ESG: A Crucial Insight
Independent directors play a pivotal role in corporate governance, serving as impartial overseers detached from the company’s management. Mandated by law, every listed public company must have at least one-third of its directors as independent directors. Additionally, unlisted public companies meeting certain financial thresholds must appoint independent directors to ensure transparency and accountability.
In the evolving landscape of corporate governance, the importance of independent directors is heightened, particularly concerning Environmental, Social, and Governance (ESG) factors. With ESG practices gaining traction globally, independent directors serve as the first impartial voice during times of crisis, offering unbiased perspectives and contributing to ethical decision-making.
Navigating the Challenges: History and Background
The emergence of scandals, such as the Satyam Computer accounting scam, prompted a reevaluation of corporate governance in India. Despite regulatory efforts to strengthen the role of independent directors, challenges persist. Instances of non-compliance, unsuitable appointments, and collusion remain prevalent, undermining the credibility of independent directors.
Moreover, legal provisions, such as Section 169 of the Companies Act, 2013, which allows for the removal of directors by majority shareholders, expose independent directors to undue influence and liability. Courts and adjudicating bodies have also held independent directors equally accountable for company actions, leading to widespread resignations and talent flight from board positions.
Safe Harbour Provisions and Regulatory Intervention
To mitigate liability risks, the law provides safe harbour provisions for independent directors, shielding them from undue accountability unless they are directly involved in company misconduct. Despite these protections, investigating agencies and adjudicatory bodies often overlook these provisions, subjecting independent directors to regulatory investigations and litigation.
Recognizing the need for enhanced transparency and accountability, SEBI introduced directives effective from January 1, 2022, aimed at strengthening the institution of independent directors. These directives include stricter appointment procedures, disclosure requirements, and insurance mandates for independent directors of listed entities.
Conclusion: Towards a More Resilient Governance Framework
The institution of independent directors remains integral to corporate governance, necessitating continuous legislative and regulatory interventions to address evolving challenges. While SEBI’s directives represent a step in the right direction, greater awareness and adherence to safe harbour provisions are essential to retain talent and foster a conducive environment for independent directors in India Inc.
As the corporate landscape evolves, the role of independent directors in upholding ethical standards and promoting transparency will continue to be paramount, driving sustainable growth and resilience in the business ecosystem.
(Please note that this article provides general information and should not be construed as legal advice. For specific guidance, seek professional assistance.)#ESG#Sustainability