Tata Sons Director Jamshed Irani today said the quality of independent directors matters the most to a company, rather than their numbers or qualifications.
Participating in a seminar on Independent Directors organised by the Bangalore Chambers of Industry and Commerce, Irani opined that if an independent director was aware of a fault and did not act on it, he was liable to be charged with negligence of his duty to stakeholders.
This could easily be established through the minutes or agenda of board meetings, he added.
Irani, however, noted that if a CEO of a company and the CFO got together, it was not possible for an independent director to unearth any discrepancies on his own.
Irani's comments come a day after a Standing Committee tabled a report in Parliament that suggested capping the number of listed companies an individual can be a part of to five -- and 10 in case of unlisted companies -- under the Companies Bill, which is expected to come up for discussion in the Winter Session of Parliament.
Independent directors are appointed to company boards to ensure fair play in corporate affairs, as they do not have a vested interest in the company.
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However, the multi-crore accounting scam that came to light in Satyam Computer last year exposed their role as mere figureheads and raised questions about their functioning.
Irani said that personally, he refused to pass any items during board meetings that were added at the last minute. "Independent directors must be given a chance to examine them," he said.
Furthermore, independent directors who were not comfortable with the company's management of governance and working always had the option to resign, he said.
Coming down heavily on harassment of independent directors for acts they were not aware of or for individual errors down the corporate line, he cited an example of director being harassed after a junior officer of company issued a cheque that had bounced. "Such harassment is not warranted," he said.
Speaking at the conference, United Breweries Group President and CFO Ravi Negungadi said that 80 per cent of Indian businesses were family-owned or public sector entities. Hence, most family businesses found it difficult to introduce independent directors with whom they had a comfort zone and could reveal all confidential matters.
Independent directors, Negungadi argued, should have an equal footing with executive board members and should ensure that governance was in place. There should be a broad approach to independent directors rather than holding them liable for some rather simple detractions, he avowed.
According to Nawshir Mirza, a professional independent director, independent directors should not just restrict themselves to maximising shareholders' value, but also ensure a broader responsibility to society.
He said the corporate world should step out of its agenda of growing its own profits and look at the picture of wider social responsibility in terms of contributing to minimise the consequences of climate change. Just focusing on growth when the spectre of destruction hovered around was not desirable, he said.
Hitting out at corporates for promoting consumerism that impacted the environment for hedonistic gains, he said corporate governance should be taken out of the ambit of just shareholders deciding on governance and extended to those who were affected by corporate behaviour in general.
Former Chief Justice of India M N Venkatchaliah said though there have been corporates that indulged in large-scale financial irregularities, the government should ensure that the laws brought in are not an "overkill".
Extreme measures could actually hinder those who loyally followed the law. There were better methods of assisting corporate governance and corporate honesty, he said.
Some amount of policing was required, he said, but asserted that it should not result in panic, but healthy fear of law.