Role of Professionals as Independent Directors:

?MCA vide its Notification dated 19th August 2021 has issued the Companies (Appointment and Qualification of Directors) Amendment Rules, 2021. These Rules came into effect on 20th August 2021 and provide exemption to ?Professionals to pass online proficiency test to add name in Independent Director Data Bank:

1. in the pay scale of Director ……. commercial activities.

2. Following individual having qualification for at least 10 years as

(A) an advocate of a court; or

(B) in practice as a chartered accountant; or

(C) in practice as a cost accountant; or

(D) in practice as a company secretary.

?Such an individual who is a Professional and possesses the requisite expertise and experience, would commit all his time and energy to being an independent director on various boards.

Advantages: A distinct advantage of this option is that it allows such individuals to focus their attention exclusively towards performing their directorship roles efficaciously in companies on whose boards they sit. As they are qualified and have knowledge of industry inside out, they can spend greater amounts of time and attention towards the companies’ affairs. It enables greater interaction with managements of companies (at various levels) resulting in a smoother flow of information to the board, and more specifically the independent directors. Apart from these professionals being experts in their own right, they can potentially benefit from participating on boards of several companies. They can enrich themselves by learning from their experiences on one board, and then apply that on other boards, thereby resulting in a cross-fertilisation of ideas and best practices. This generates an optimal outcome for all the companies on which the individuals are directors.

It is recommended that the role of independent directors consist of two parts: (i) advisory; and (ii) monitoring. Independent directors need to bring value to the company in terms of their ability to provide inputs on strategic, business, marketing, legal, compliance, or other relevant aspects, and also carry out monitoring functions (by acting as watchdogs) in order to protect the interests of shareholders. These roles are to be clearly outlined so that independent directors are not subject to any uncertainty on this front. Admittedly, it may be a tall order to require every independent director to perform both advisory and monitoring functions, and that may not be practicable to begin with. However, the board could be comprised of independent directors with different capabilities so that the board as a whole may be in a position to perform both these functions effectively.

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Developing and acquiring skills to do their jobs effectively – the importance of training and induction

?Professional as Independent Director and Concept of Women Director

?There has been a wide view that there is a need to specifically mention the word "independent" while mandating gender diversity so that women directors get appointed beyond the promoter family and it does not turn into a tick-box exercise. In May 2018, SEBI said each of the top 1,000 listed companies must have at least one woman independent director by March 2020. As on December 31, 2019, 977 of that top 1,000 companies had a woman director, and 835 of them had an women independent director.

Interestingly, a study shows that a large proportion of women directors (60%) are independent -which is contrary to the popular notion that women directors are only getting appointed from the promoter family to comply with the regulations. A senior woman director who is on multiple boards say some Indian boards often have one or two members who do not take women seriously. These people make their attitude apparent by walking out, looking away or scanning their phones when a woman director starts to speak.

In such a scenario, being a professional becomes useful. Another round of churn is expected on company boards around 2023-2024 as a director’s tenure was capped at 10 years in 2013. Veteran independent directors will have to make way for new members. This will also go a long way in virtually dismantling any ?remaining old-boys clubs in corporate India!?

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