The Independent Director: Has it been Indianised Enough?
Volume 6 Issue 2 (2013)
This paper looks at the institution of the independent director as a corporate governance tool, and assesses its effectiveness in the Indian context. This analysis assumes significance in light of the fact that the independent director, i.e., a company director who has no ties with the company’s management, emerged in the US against a completely different backdrop, and to tackle a completely different problem than what afflicts Indian listed companies. The problem that the independent director was conceived to tackle in the US is the agency problem between the management and the shareholders resulting from a dispersed shareholding pattern. However the corporate setting in India is marked by the presence of a controlling shareholder, and hence the major corporate governance problem is the conflict between the majority shareholders (who often control the management) and the minority shareholders. This paper finds that while the institution might not have been conceived with this problem in mind, it can nonetheless be adapted sufficiently. The purpose of this paper is to examine whether this adaptation has taken place, and if not what further steps are required at the regulatory or legislative level. In this context, I have made a number of suggestions which I hope will make the independent director a more effective tool.