The Satyam Fiasco
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Independent directors: time to introspect, suspect, respect – an Indian perspective
Rashmi Aggarwal
IMT Ghaziabad, Ghaziabad, India
Abstract
Purpose – The purpose of this paper is to understand the culpability of independent directors (IDs) in a public listed company under clause 49 of the listing agreement of the Securities Exchange Board of India, which, primarily, is the corporate governance mandate in India. Design/methodology/approach – This paper has been developed on the basis of intensive interviews conducted with 16 legal experts working with 50 top listed companies and seven advocates from the Delhi High Court and the Supreme Court of India, literature survey from research papers, bare acts and policy guidelines on corporate governance by the Government of India. Findings – Two contrary opinions are being rendered on the culpability of IDs. The first proposes a strict and absolute penalty on all directors which would deter them from colluding with promoters. The second proposes that IDs should not be tarred with the same brush unless conclusive evidence of collusion is produced. These contrary opinions are herein analyzed and recommendations put forward. Research limitations/implications – The research paper attempts to study only the culpability of IDs. It envisages the appointments of IDs onto boards without deliberation on the issue assuming that these appointments are made in good faith and trust. Originality/value – The research paper attempts to study whether the IDs who are non-executive directors and who do not have a pecuniary relationship with the company actually share a fiduciary relationship with the shareholders and observe the principle of conflict of interest. There are some compelling reasons for them to alienate liabilities given the dramatic effects of financial disarray as in the case of Satyam. Keywords India, Corporate
Independent directors: time to introspect, suspect, respect – an Indian perspective
Rashmi Aggarwal
IMT Ghaziabad, Ghaziabad, India
Abstract
Purpose – The purpose of this paper is to understand the culpability of independent directors (IDs) in a public listed company under clause 49 of the listing agreement of the Securities Exchange Board of India, which, primarily, is the corporate governance mandate in India. Design/methodology/approach – This paper has been developed on the basis of intensive interviews conducted with 16 legal experts working with 50 top listed companies and seven advocates from the Delhi High Court and the Supreme Court of India, literature survey from research papers, bare acts and policy guidelines on corporate governance by the Government of India. Findings – Two contrary opinions are being rendered on the culpability of IDs. The first proposes a strict and absolute penalty on all directors which would deter them from colluding with promoters. The second proposes that IDs should not be tarred with the same brush unless conclusive evidence of collusion is produced. These contrary opinions are herein analyzed and recommendations put forward. Research limitations/implications – The research paper attempts to study only the culpability of IDs. It envisages the appointments of IDs onto boards without deliberation on the issue assuming that these appointments are made in good faith and trust. Originality/value – The research paper attempts to study whether the IDs who are non-executive directors and who do not have a pecuniary relationship with the company actually share a fiduciary relationship with the shareholders and observe the principle of conflict of interest. There are some compelling reasons for them to alienate liabilities given the dramatic effects of financial disarray as in the case of Satyam. Keywords India, Corporate
References: Cadbury, S.A. (1992), “Code of best practice”, Report of the Committee on Financial Aspects of Corporate Governance, London. Nanda, A. (2006), The Ethics of Professionalism, Harvard Business School, Boston, MA. Som, L. (2006), “Corporate governance codes in India”, EPW, Vol. 30, November, p. 4153. Independent directors 131 JIBR 2,2 The Institute of Company Secretaries of India (1956), Corporate Governance Modules of Best Practices, 7th ed., Indian Company Act, The Institute of Company Secretaries of India, Taxmann Publications, New Delhi, p. 613. About the author Rashmi Aggarwal has been awarded PhD degree in Legal Frame work of the patents – with special reference to medical patents in March 2007 from Law Department, Panjab University, Chandigarh. She is LL.M. in International Law, LLB from the same University. An ardent researcher she has many publications both in national and international journals to her credit. She is presently working as Associate Professor in the area of Economic and Environment Strategy in Institute of Management Technology, Ghaziabad. Rashmi Aggarwal can be contacted at: arashmi@imt.edu 132 To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints