What are the responsibilities of an Independent Director of a company?

Introduction

An Independent director refers to a director who is not connected or related to the company in any manner and only works to secure the interest of such members who cannot look after their interests by themselves. One of his major responsibilities of him is to improve corporate credibility and governance standards. In this blog, we will discuss the responsibilities and duties of an Independent Director but first, we will learn who is a director as per the Companies act, 2013.

Who is the Director?

A Director is defined by Section 2 (13) of the Companies Act of 1956 as “any person exercising the position of Director, by whatever name called.” Their appointment, duties, retirement rights, and salary are all covered under the Articles of Association. In simple words, Director is a person who represents the company. He or she oversees, directs, and controls the business and its employees.

Who is an Independent Director?

He is a non-executive director whose decision is not affected by relations with any of the people of the company. As per the Companies Act, 2013 an independent director is a director who is not the managing director, a full-time director, or a nominee director and who satisfies the criteria listed below:

A person can be an independent director-

• who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;
• who is or was not a promoter of the company or its holding, Indian subsidiary, or associate company;
• who is not related to promoters or directors in the company, its holding, subsidiary, or associate company.

Responsibilities of an Independent Director

He can serve as the Company’s mentor, coach, and advisor. The function encompasses increasing business credibility and governance standards by acting as a watchdog and assisting with risk management. He must actively participate in the different committees of the company that has been formed to provide better governance. The responsibilities of an Independent Director are as follows:

• He has to assist in providing an impartial view to the Board’s deliberations, particularly when it comes to decisions like strategy, performance, risk management, resources, important appointments, and ethical code.
• To evaluate the performance of the board and management with an impartial viewpoint.
• He has to examine the performance of the management by reviewing the agreed goals in the meeting and monitoring the reporting of the performance.
• He is responsible for handling the pressure coming from the owners.
• He has to protect the interests of all the shareholders involved, especially the minority shareholders.
• He has to maintain the balance when there is a conflict of interest between the shareholders.
• One of the major responsibilities of an Independent Director is to determine the appropriate salary for the executive directors, key managerial personnel, and senior management.
• He has the responsibility of appointing and removing executive directors, key managerial personnel, and senior management.
• When the interests of management and shareholder clash, then it is the sole responsibility of an Independent Director to mediate and arbitrate the situation in the best interest of the company.

Suggested Read – Rights and Duties of a Director in a Company

Duties of an Independent Director

The following are the duties of an Independent Director:

• He has to provide a proper explanation or clarification for the material purchased under the name of the company and, if necessary, obtain and follow professional counselling and opinion.
• He has to attend all Board of Director meetings and Board committee meetings.
• It is the duty of an Independent Director not to disclose any confidential information like trade secrets, technology, advertising strategies, sales promotion plans, or any sensitive information unless it is approved by the Board of directors or any law.

Final thoughts

From the above discussion, we can conclude that appointing an Independent Director in any company is very important. Because he is responsible to protect, safeguard and guarantee the interest of the shareholders or members of the company. If such a director is appointed from within the company by the Board, then there are chances of biased decisions or martial opinion because such a director will have a pecuniary interest and other forms of interest in the company. The person appointed from outside the company will have an impartial opinion and help the company in improving corporate credibility and governance standards.