Want To Be An Independent Director? Read This Before You Make Up Your Mind

Becoming an independent director on the board of a company, especially a listed one, is a matter of great validation for several professionals, including executives in India.

In fact, many professionals consider the position to be the pinnacle of their professional success when they are inducted into the board of companies, which are part of Nifty50 or BSE100 constituents.

However, one has to take a pragmatic decision while aspiring to become an independent director on the board, given the evolution of the Companies Act 2013, and several other amendments in other acts related to the liability of a board, including an independent director.

What Are The Criteria?

To become an independent director in India, you need to meet certain qualifications and also adhere to the followings:

• Educational Qualifications

  To be eligible for an appointment as an independent director, you should have a minimum educational qualification of a graduate or equivalent from a recognized university.

• Experience

  You should have experience in a senior management position in a company, or in a profession such as law, accountancy, or engineering.

• Training

  You should complete a training program on the responsibilities of an independent director as specified by the regulatory bodies such as the Securities and Exchange Board of India (SEBI) or the Institute of Chartered Accountants of India (ICAI).

• Director Identification Number

  You should have a DIN, which is a unique identification number, issued by the Ministry of Corporate Affairs (MCA).

• Disclosure

  You should make a disclosure of your professional and financial status, including any relationships you have with other directors or key management personnel.

• Appointment

  You are eligible to be appointed as an independent director by the board of a company once you meet the above criteria.

• Compliance

  You should also comply with all the laws, regulations and guidelines issued by the government and regulatory bodies after becoming an independent director.

• Continuous Learning

  You should keep updating your knowledge about the latest laws, regulations and best practices in the field of corporate governance and independent directors.

What Are The Benefits?

• Professional Development

  Independent directors get the opportunity to gain knowledge and experience in different industries and companies, as well as meet executives with different points of view. This helps them improve their professional network, while interactions with other board executives prompts them to look at the broader picture of the ongoing and upcoming disruptions in the supply-demand dynamics, there leading to their overall professional development.

• Board Representation

  Independent directors bring an independent perspective to the board and can provide valuable insights and advice to the management team.

• Financial Compensation

  Independent directors are typically compensated for their time and expertise, which can be a source of additional income.

• Good Governance

  Independent directors play an important role in promoting good governance and ensuring that the company is operating in an ethical and transparent manner.

What Are The Drawbacks?

• Time Commitment

  Being an independent director can be time-consuming, as it requires regular meetings and participation in the board activities.

• Liability

  Independent directors can be held liable for any illegal or unethical activities that happens within the company.

• Reputation Risk

  Serving as an independent director can potentially harm one's reputation if the company is involved in any negative publicity or legal issues.

• Limited Control

  Independent directors have limited control over the company's operations and decision-making and this can result in frustration if they disagree with the management's actions.

• Compliance Burden

  Independent directors have to comply with multiple laws and regulations, which can be challenging.

• Lack Of Information

  Independent directors may not have access to all the information they need in order to make informed decisions. This can limit their inputs on important matters.

It is important to note that the qualifications and requirements for becoming an independent director may differ depending on the company and industry you are working in.

However, if you are considering being an independent director, then you should think thoroughly about this before making any commitments, as you are expected to uphold the interest of all the stakeholders.