The rules, procedures and process that deals with the working of a corporate entity are known as corporate governance.
It essentially involves working in the best interest of the company while balancing shareholders’ interests.
According to Companies Act, 2013, as an independent director is a non-executive director of the company who does not have any relation with the company or its members nor is an authority is a company in the proceeding 3 years.
He should not own a share of not more than 2% of the total shares in that company.
Role and Significances of Independent director
- Offset the management flows in a company.
- Ensures the practice of legal and ethical behaviour at the company.
- Strengthens the accounting controls as a company needs to appoint 2/3rd of independent directors in auditing in account division.
- Be a part of long term durians which need to be taken, for the company’s welfare, Like that of Board of directors to be independent directors if the chairman is executive director, or else 1/4th of Board of Director should be independent directors.
- Increase popularity and creditability of the company through his contacts and expertise.
- Be a part of improved Succession planning through membership of the nomination committee, thus helping the company properly.
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- Corruption among Independent directors.
- Company authorities appointing their close associates as independent directors.
- Sometimes issues in decision making and accounts.
- Leakage of the company’s secrets and insider trading.
Thus independent directors help in the survival, growth and credibility of the company. Yet, there are some genuine concerns which should be resolved with strict law enforcement in case of violation of rules.