Independent Directors, Corporate Governance and Company Performance - India

Abstract

This study suggest that the independent directors role needs to strengthened to achieve the desired goal of corporate governance. In india, despite being listed, there is family ownership structure. This has an important influence on the priorities set by the board, and that these priorities will determine the firm performance and corporate governance, despite independent director monitoring, It is found that where independent directors enjoying good trust with the family councils and have financial experience could ensure success to the best interest of the widely dispersed shareholders and stakeholders. Understanding the influence of family and role of independent directors on the board of directors in turn on firm performance requires greater sensitivity to how corporate governance affects different aspects of effectiveness for different stakeholders and in different contexts. Hence a framework on the interaction between ownership, corporate boards and firm performance could help. This paper looks into the current scenario in Indian Corporate Sector and examine the role of Independent Director in Corporate Governance, in particular. We are looking at Companies Registered in India and how the role of Independent Directors brings about better corporate governance and whether this brings about improved company performance. Recourse to independent directors by private equity investors per se is not tied to performance increases. . Our study shows that independent directors impact the rate of return only on deals which require very specific skills, i.e. turnaround and buyout investments. Besides, busy independent directors do not seem to affect negatively the internal rate of return. Finally, independent directors tend to resign when performance is unsatisfactory and consent to shave losses when performances are negative. We are aware that Independent Directors (IDs) play a critical role in implementing sound corporate governance practices in companies.