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The IUP Journal of Corporate Governance
Independent Directors in India and USA: A Comparative Study of Provisions
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An independent director is a non-executive director who is devoid of any material conflict of interest with the company or its promoters. In the aftermath of various serious corporate frauds and incidents of mismanagement, investor confidence was badly hurt. To restore a degree of confidence in the investors in companies, many committees were constituted in different countries, and most of them recommended, as one of the measures to remedy the situation, the concept of independent director on corporate boards. India too adopted the concept initially through codes/recommendations made by committees and lately by incorporating necessary provisions in the New Companies Act, introduced in 2013, in an elaborate way. The USA provisions on independent directors emanate from listing manual of stock exchange and are generally similar to Indian regulations. The present paper examines different aspects of independent directors in the two important jurisdictions of India and USA in a comparative way. It is observed that both the countries have laid focus on absence of conflict of interest to determine the independent status of a director. Indian law prescribes one third of independent directors, while in USA, a majority of directors have to be independent. There are various similarities in the provisions relating to independent directors in the two countries.

 
 
 

An independent director is a non-executive director of a board of directors who does not have a material or pecuniary relationship with company or related persons, except sitting fees. The concept of such a director emerged as an important remedy to various ills of corporate frauds and acts of mismanagement. “They are perceived to be powerful instruments of corporate governance and can bring objectivity and independent judgment in decision making” (Kishore, 2017). The Cadbury Committee in UK and many others in different jurisdictions had advocated appointment of independent director to promote better corporate governance and boost shareholders’ confidence. Most of the countries have adopted the concept of independent director in their law or regulations dealing with corporate governance. Provisions on independent directors have also been included in various stock exchanges’ listing documents. The nuances of provisions dealing with this aspect vary across countries, but focus is generally to introduce non-conflicting members on a prime decision-making body like board of directors. Besides, board positions, independent directors also find places on board committees like audit committee, compensation committee, nomination committee, and grievances committee to play their role as independent purveyors of shareholders’ interest and overall interest of company as a whole. The present paper examines different aspects of independent directors in two important jurisdictions of India and USA in a comparative way.

 
 
 

Corporate Governance Journal