The world of business governance is no longer the same; the demand for Independent Directors (ID) has seen a massive upswing. Previously, the role of an Independent Director did not hold much weight, often considered a mere fulfilment of corporate structure. Today, this situation has significantly changed, especially in India. The country, known for its family-run large corporations, has embraced the robust governance norms brought in by The Companies Act, 2013, and Independent Directors are at the forefront of this change.
The Impact of The Companies Act, 2013 on Independent Directors
Introduced in 2013, The Companies Act changed the landscape of corporate governance. This piece of legislation enforced the hiring of non-executive directors, better known as Independent Directors, based on their pass status on an online assessment exam. The exam tests the candidates' corporate literacy, knowledge of Indian Company law, ethics, and market norms.
Furthermore, The Companies Act placed a five-year term on the Independent Director’s appointment, with reappointment possible only through a special resolution passed by the company. This move effectively rendered several existing Independent Directors incompetent under the new rules, opening vacancies for qualified and capable individuals to step in. Thus, the Act has been a game-changer in corporate governance.
The Increasing Demand for Independent Directors in India
The revised legislation and other factors, such as guidelines from the Securities and Exchange Board of India (SEBI), have sparked a noticeable trend: companies are on a quest to recruit expert Independent Directors. But what fuelled this search for Independent Directors?
The increasing awareness of corporate misconduct and fraudulent practices, especially in the wake of the Satyam scandal in 2009, has played a significant role. Domestic and foreign investors, more conscious of regulatory rules, are now actively seeking out companies with better corporate governance, making the role of Independent Directors crucial.
Unlike other executive positions where profit maximization is the focus, Independent Directors act as corporate watchdogs, pointing out misconduct and malpractices. They ensure the company’s best interest is kept in mind, engaging in quality debates regarding company decisions, and adding value to the organization. Furthermore, their impartial decision-making process benefits the minority shareholders, improving the overall integrity of the corporate governance.
The Pivotal Role of Independent Directors in Conflict Resolution and Networking
Boardrooms can be breeding grounds for conflicting opinions. Independent Directors often neutralize situations and help resolve disagreements with their expertise, garnered through years of experience as executive board members or managers in other companies. In addition, Independent Directors can also expand the company's networking ability and resources, bringing in special advisors like lawyers, bankers, and financial experts.
A Growing Talent Crunch and the Emergence of the Directors' Institute
Since the enactment of The Companies Act of 2013, there has been a substantial demand for Independent Directors. Talent search consultants agree that the requests for qualified Independent Directors have increased recently. The onset of the COVID-19 pandemic and the subsequent shift to online working modes have amplified the chances of new, sophisticated financial fraud and misconduct. Consequently, the role of an Independent Director has become even more crucial, contributing to the talent crunch.
Recognizing this need, the Directors' Institute (DI) has developed a certification programme that enables aspirants to be the change that the Indian corporate space urgently needs today.
The Changing Tides in the Recruitment of Independent Directors
Companies can no longer afford to hire Independent Directors based on personal connections or interests. The focus has shifted towards hiring qualified and capability-matching Independent Directors, especially for companies aiming to make their mark globally. In conclusion, the increased demand for Independent Directors reflects a clear sign that corporate governance is becoming more efficient, and board members are adhering to the norms and regulations of the government. The Directors' Institute could be your stepping stone towards this vast pool of opportunities.