The IUP Journal of Corporate Governance
Factors Restraining Independent Directors from Effectively Discharging Their Duties

Article Details
Pub. Date : Oct, 2021
Product Name : The IUP Journal of Corporate Governance
Product Type : Article
Product Code : IJCG21021
Author Name Devendra Jarwal* and Soni Mitali
Availability : YES
Subject/Domain : Management
Download Format : PDF Format
No. of Pages : 15

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Abstract

Independent directors are expected to play a pivotal role in effective ethical corporate governance. Incidences of corporate governance failures, despite the adequate presence of independent directors on the board, indicate their ineffectiveness, and therefore it is essential to examine the various factors that restrain them from effectively discharging their duties. The authors employed qualitative exploratory study strictly limited to enumerating the factors that are restraining independent directors from performing their duties effectively. And, for such explorative study, the authors found that focused discussion group method with analysis of case studies of select companies is the best-suited method to conduct this study. The legal framework is continuously empowering independent directors with various powers and safeguards. Yet, they failed to come up to the expectations of the stakeholders and policymakers. The study concluded that both external and internal factors restrain independent directors from performing their duties. The study will be helpful for policymakers and managers in the identification of behavioral factors responsible for independent directors' ineffectiveness and accordingly will help in formulating policies that will strengthen the position of independent directors.


Description

Traditionally, the ownership and management of a business organization was vested with the same set of people, but with the advent of bigger and larger business ventures spanning across the globe, it became inevitable to have more and more professional people in the top management having the entire decision-making authority, to allow them to manage the ever-increasing size of the business and thereby enhancing the viability and overall profit-making ability of the business (Ghoshal, 2005). This led to the separation of the management from the ownership of the business, also known as demutualization (McNamara and Rhee, 1992). Under demutualization, businesses are run by a professional manager having a management degree in lieu of the salary (Dyer, 1989). These professionals are highly qualified, yet they work under the promoter group of the corporation and often promoters themselves become directors (Sarkar et al., 2008). Thus, these promoter groups exercise full control in managing the affairs of the company (Reed, 2002).