A majority of independent directors prefer advisory roles, rather than accepting new positions, as legal actions against them have been “extreme” and insufficient safeguards to protect them from unfair persecution and reputational damage. This could result in a parallel corporate governance structure and smaller or newer companies may not be able to attract high-quality directors, according to a study by Confederation of Indian Industry (CII) and consulting firm Protiviti.
About 70% of the independent directors (IDs) believe that the legal action against the community has been extreme and over 80% said that there are insufficient legal safeguards to protect them from unfair persecution and reputational damage. These are compelling many of them to seek advisory position in companies instead of board positions, it said.
Nearly 52% of IDs interviewed believe that the auditors do not provide adequate inputs and there is a need for improvement in the way they discharge their roles. Key risks and controls related to several important areas such as operational controls, cyber and data security, fraud, investment risks are not getting adequate importance, it added.
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As per 60% of IDs, the roles and responsibilities as defined by the Companies Act are “unreasonable and onerous”. While IDs have to provide written assurances confirming the framing of Internal Financial Controls and compliance to applicable laws, this goes beyond their scope as non-executive members.
Another 60% said that they do not have adequate resources to confirm the health of internal controls, relying on the integrity of the information shared with them by the management and auditors, while assessing the company’s decisions and detecting deficiencies.
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“Corporate governance is not merely about compliance. Owing to reasons such as protection of investor interests, promotion of transparency, raising disclosure standards to international levels, and building public confidence, CII has emerged as a forerunner in corporate governance movement in India.
This study report stands out to be one such endeavour, intended for voicing of pertinent issues by independent directors on need for companies to be more cognizant of their internal control parties and governance behaviour,” Ajay Bahl, Chairman CII Task Force on Judicial Reforms Co-Founder and Managing Partner at AZB & Partners said.