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Exodus: 265 independent directors quit since Jan

Scrutiny over the role and responsibilities of independent directors in companies after the Satyam scandal has led to a series of resignations. According to directorsdatabase.com, 265 independent directors have resigned from 211 boards since Jan 2009, reports Sandeep Singh.

business Updated: May 11, 2009 22:34 IST
Sandeep Singh

Scrutiny over the role and responsibilities of independent directors in companies after the Satyam scandal has led to a series of resignations. According to directorsdatabase.com, 265 independent directors have resigned from 211 boards since January 2009.

“This exodus began post-Satyam,” said NK Jain, CEO, Institute of Company Secretaries of India. “The immediate reaction is understandable as people feel uncomfortable in companies where the extent of transparency and disclosure is low and there is a compliance issue.”

The discomfort is not necessarily with fraud, but with the accompanying liability in case one emerges.

“I have received several calls in the last 45 days from such people asking me for my insight into the companies on which they are on the boards, so that they can take preemptive action by resigning and not be caught napping later,” said Prithvi Haldea, managing director, Prime Database.

“They are now admitting in private that they are resigning from companies where they are not very comfortable.”

On the other side, institutional investors are watching this exodus with unease. “It is a matter of great concern because there might be issues relating to corporate governance in the companies that they were serving and are now resigning from,” a senior official with a leading financial institution said on conditions of anonymity.

Experts are of the view that independent directors do not remain independent in the due course as they come under the influence of promoters.

“Some are worried that their life’s reputation can be ruined overnight,” Haldea said. “Others are asking questions whether the fee they earn enough for them to expose themselves to such risks and are now trying to recollect as to how many times they proactively acted in the interests of minority investors.”

An analysis of the resignations suggests that in many companies two, three or even more independent directors have submitted their resignations within a matter of two days. “This shows the anxiety with which directors are wanting to opt out,” the official said.

Experts say while this reaction will wane off over a period of time, it is good for corporate governance. “This will act as a catalyst for companies to make sure that the level of disclosure and compliance remain above board,” said Jain.