Do independent directors enhance better corporate governance in companies in India?

Abstract

PurposeThe effectiveness of independent directors in making autonomous decisions for better corporate governance in organizations has often been questioned. This paper aims to investigate their role in company’s decision making in India and the reasons behind their ineffectiveness.Design/methodology/approachThis paper examines the regulatory environment and ongoing reforms in which independent directors operate. It identifies crucial factors such as ownership patterns, the appointment and selection process that affect their autonomy. The analysis draws from newspaper articles, blogs, India’s regulatory requirements, The Companies Act and relevant related literature.FindingsThe findings reveal that the independence of directors remains largely in form but not in function. This paper recommends a fair and more robust selection through an independent authority, and disclosure of the resignations of independent directors. Independent directors should be given more powers and their risk-reward scheme should be analyzed.Originality/valueThe paper emphasizes the need for independent directors to be truly independent from the senior management, promoters, and other existing directors. It calls for tighter and more transparent appointment procedures to ensure that independent directors are not influenced by senior management and can bring objectivity to the company board.