Independent Directors and Corporate Governance: A Comparative Study of Indian and UK Provisions

By Kishore, Kamal | IUP Journal of Corporate Governance, January 2017 | Go to article overview

Independent Directors and Corporate Governance: A Comparative Study of Indian and UK Provisions


Kishore, Kamal, IUP Journal of Corporate Governance


Introduction

Corporate governance gained prominence in the aftermath of turbulence created in corporate management ethos by a slew of serious scandals and frauds that shattered investor confidence in corporate management and reporting. Gradually the concept permeated all aspects of corporate decision making. The governments and corporate managements participated in initiating necessary remedial measures aimed at regaining the bruised confidence of investors and other stakeholders of corporate decisions.

The three nugget principles embodied in good corporate governance relate to transparency, accountability and fairness. Corporate governance is now perceived to be a good strategy that leads to long-term sustenance of business. Most regulations focused importantly on the role of independent directors in fostering good and responsible corporate governance. They can be powerful instruments of corporate governance and can bring objectivity and independent judgment in decision making. The corporate governance codes in various countries are endeavored to make necessary provisions for the role of independent directors in corporate boards in furtherance of this cause. Indian corporate laws have historically drawn inspiration from British Laws in their content and interpretation. The present paper is a comparative study of provisions relating to independent directors drawn from relevant codes in India and UK.

Literature Review

An Independent director is a non executive director on the board of directors of a company who does not have any material or pecuniary relationship with company or related persons, except sitting fees. Independent directors do not own shares in the company (Wikipedia, 2016). In the aftermath of a slew of corporate frauds and misgovernance witnessed world over, various committees, codes and legal structure advocated the institution of independent directors as an important measure towards fostering better corporate governance. Independent directors have emerged as the cornerstones of the worldwide corporate governance movement. Their increased presence in the boardroom has been hailed as an effective deterrent to fraud and mismanagement, inefficient use of resources, inequality and unaccountability of decisions (Mittal, 2011). They have long been viewed as a solution to many corporate governance problems (Clarke, 2007). An Australian paper, on the basis of reliance placed on their concept of independent directors, commented that there was an over emphasis placed on some rather limited psychological evidence that independence in the boardroom produces more critical thinking and informed discussion thus leading to higher quality decision-making (Wheeler, 2012). The paper further highlighted that Independence constructed on the basis of structural tests will not produce automatically the type of behaviors that the proponents of independence and diversity think it will. If such behaviors result, then they are occurring most probably through chance rather than as a result of corporate governance mechanisms advocating independence (Wheeler, 2012).

The main justification from a public-policy perspective lies in the notion that independent directors will be less conflicted than management in representing shareholder interests in general, because they will not be concerned with preservation of their own jobs as would employee directors (Clarke, 2007).

The common prescription of independent directors being vouched as instruments of good corporate governance has, however, been challenged in another paper, where authors have argued that the shift towards more 'independent' directors is a fundamentally bad move, which undermines the rights and powers of minority shareholders and entrenches a second-rate corporate governance model-the separation of ownership and control-in our company law. In contrast, they have proposed that all directors must have a significant interest in the company they serve so that the directors' self-interests and the best interests of the company become inextricably intertwined (McConvill and Bagaric, 2004). …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Independent Directors and Corporate Governance: A Comparative Study of Indian and UK Provisions
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.