tag:blogger.com,1999:blog-7182576430045656062.post4605815961306004541..comments2024-02-25T13:47:07.003+05:30Comments on Candid Unheard Voice of Indian Microfinance: Defining Independence of Directors in Boards: What Micro-Finance Can Learn From Four Global Corporate Governance Frameworks?Ramesh S Arunachalamhttp://www.blogger.com/profile/09264606020720529040noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-7182576430045656062.post-40198356099326130352011-04-29T17:27:16.166+05:302011-04-29T17:27:16.166+05:30hi Ramesh, the question of 'independence' ...hi Ramesh, the question of 'independence' of the independent directors is an age old question which is difficult to answer in any straight and simple manner. the law does permit a company to pay an independent director sitting fees, commission on profits and also stock options. when a director is drawing commission (subject to the legal ceiling of 1% of profits as per Sec 349 of Cos Act), how does one regard him as independent? the higher the company declares its profits, the better it is for him ... so can he really be in form and substance be independent? same applies to stock options which are also legally permissible. <br /><br />while the basic things can be taken care of such as no relationship with other shareholders, no business or consulting relationship etc, the real challenge is when his remuneration or earning is linked to the company's performance, can he technically be still held as independent? and if not, then no company has any independent directors since all comkpanies do have commission, if not stock options.<br /><br />also as per the quote of Damodaran provided by you, a promoter can fill the board room with people who are on paper independent but really are 'yes' men to the promoter ...so what gets achieved then? <br /><br />hence while as suggested by you and the global best practices, while we need to look for independent status for directors, the real benefit a company can derive through active participation of the independent directors is dependent on the value system and culture of the promoter. the focus needs tobe very specifically on the promoter to achieve true benefits of independent director system<br />regards/vasuvasudevanpnhttp://www.equitas.innoreply@blogger.com