Independence of Independent Directors

Abstract

INTRODUCTION A company is a legal entity of its own, but being an artificial person, they also constitute a body for controlling their affairs, which are the board of directors. A board of directors is the governing body of a company, whose members are elected by shareholders (in the case of public companies) to set strategy, oversee management, and protect the interests of shareholders and stakeholders. Every public company must have a board of directors. The independent director—also known as an outside director—is a member of a board of directors who brings a unique, unbiased perspective. The term “independent director” is commonly used to denote a director who's not an employee of the firm or organization where they serve on a board. OBJECTIVE OF RESEARCH There are mainly two controlling bodies present in a company; Shareholders and the Board of Directors. The difference between the shareholders and directors is based on the formation and setup of the company. It is the basis of corporate governance where there is a separation of duties and responsibilities. Mainly the shareholders are the owners of the company or business they are they provide funds to the business in the form of capital. While the directors are the managers of the business, they are the decision-makers in the daily running of the business. While the shareholders have rights to their investments, the directors have responsibilities towards the shareholders and all the stakeholders. The significance of Independent directors is that they don’t have a conflict of interest with the companies where they serve. They bring unique expertise, perspective, and background to the boardroom table. And most importantly, they help maintain an objective viewpoint during decision-making. This paper tries to highlight the the importance of the unbiased outlook of the independent directors and how if that outlook is dismayed, the entire purpose gets defeated. The independent directors’ main duties and responsibilities typically include: Protect the interests of all stakeholders, Balance the interests of all stakeholders while making deliberations. The directors have fiduciary relationship with the shareholders and not the management. There are instances where the objectives of management differ from those of the wide body of shareholders. The non-executive directors must be able to speak up in the interest of the ultimate owners and discharge their fiduciary oversight functions. this is the reason that the independence has become such a critical issue in determining the composition of any Board. CONCLUSION This paper aims at critically examining the flaws in the functioning of the independent directors and how it affects the purpose of their creation through case studies and decided case laws.