Nearly 881 Independent Directors (ID) quit their companies in the financial year 2022–2023, according to a Financial Express (FE) report that quoted data from primeinfobase.com. The number of IDs quitting this year is 14.5 per cent more than last year.
IDs are responsible for both legal and regulatory obligations. They can raise red flags and register their disagreement on board matters.
The report added that the role of IDs has come under the scanner as they form the first line of independent authorities along with the auditors. They are responsible for keeping an eye on any wrongdoings in a firm.
Shriram Subramanian, founder and managing director of InGovern Research Services, was quoted in the report as saying, "The demands on the independent directors are much higher. Directors are aware that non compliance will lead to greater scrutiny and are aware of fraud risks and the liabilities that come with that. Older directors increasingly face the challenge of getting used to new technology."
Experts said that there are provisions that mandate independent directors on a board register their dissent if they notice any wrongdoing. If an ID fails to do so, the ID may also be tagged as a defaulter in his personal capacity. This could result in him or her being declared unfit to hold any significant position.
Citing an example from a recent exit, the report stated that an independent director of Modulex Construction Technologies submitted a 65-page resignation letter to the exchanges highlighting the corporate governance issues at the company.
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IDs have protection under the Companies Act. They can be held responsible for only those activities of the company of which they had knowledge, had consented to, or provided approval for.
Enhanced duties, roles, and responsibilities for independent directors have been in place for a few years, but the role of IDs came into prominence primarily after the Companies Act 2013 was implemented.