Today, let us start by understanding the time when an independent director (ID) is required to be appointed. 

• Most public companies appoint independent directors ahead of their IPOs, or if they have reached the INR 10 crore paid-up capital/INR 100 crore turnover/ INR 50 crore debt threshold 

• Companies may also need to appoint new independent directors upon the expiry of a term of an existing independent director, when such a director’s appointment is not renewed or cannot be renewed. 

There are two broad ways of identifying independent directors – one is through professional executive search agencies, and the other is through the personal networks of the promoters and senior management.  

What will promoters/ executive search agencies check before they shortlist you? 

1. Whether your name is listed in the independent directors’ database 
2. Your LinkedIn profile – do you have the necessary track record? 
3. Does your Google footprint substantiate what your LinkedIn profile states?  

If you know the founders, have a strong professional track record or are on the records of an executive search agency, and you can crack the interview, you will be appointed. 

Work of an independent director

As an independent director, you will be required to attend meetings of the board and any committees that you are a part of. Usually, the board must have at least 4 meetings in a year as per the Companies Act, but it can meet more frequently as well. 

Apart from their appointment to the board, independent directors are also appointed to one or more of the following committees: audit committee, nomination committee, remuneration committee, stakeholders relationship committee, corporate social responsibility committee or any other committee that the board creates. 

Every committee will meet at least twice in a year, as per the Companies Act. 

In addition, as per SEBI’s (Listing Obligations and Disclosure Requirements) regulations, all independent  directors  of  a  listed company must hold at  least  one  meeting  in  a  year,  without  the  presence  of  non-independent  directors and  management to: 

• Review  the  performance  of  non-independent  directors  and  the  Board of Directors  as  a  whole 

• Review the performance of the Chairperson of the listed entity, taking into account the views of executive directors and non-executive directors 

• Assess  the  quality, quantity and timeliness  of  flow  of  information  between  the  management  of  the  listed  entity  and  the  board  of  directors  that  is  necessary  for  the  board of directors to effectively and reasonably perform their duties

• Provide an independent judgement on the Board’s deliberations, especially on issues of strategy, performance, risk management, resources, key appointments and standards of conduct

• Bring an objective view in the evaluation of the performance of the Board and management

• Satisfy themselves on the integrity of financial information, and that financial controls and the systems of risk management are robust and defensible

• Balance the interests of the stakeholders where there are conflicts

• Determine appropriate levels of remuneration of executive directors, key managerial personnel and senior management; have a prime role in appointing and, where necessary recommend removal of executive directors, key managerial personnel and senior management

• Arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholders 

• Pay attention in order to ensure that adequate discussions take place before approving a related-party transaction and also ensure that the same are in the interest of the company

• Assist in protecting the legitimate interests of the company, shareholders and its employees

• Report concerns about unethical behaviour, actual or suspected fraud, or violation of the company’s code of conduct or ethics policy

• Not disclose confidential information of the company which includes commercial secrets, technologies, advertising and sales promotion plans and unpublished price sensitive information unless such disclosure is approved by the Board or is required by law

How many companies can you be an independent director of at one time? 

As per SEBI regulations, an independent director cannot be appointed to the board of more than 7 listed companies at a time. 

What is the duration of appointment? 

An independent director can hold office for a maximum period of 5 years in one term, but can be reappointed for another term of 5 years maximum, if the shareholders pass a special resolution and there is disclosure of such appointment in the Board’s report.

However, after 2 consecutive terms, the independent director can be reappointed only after a gap of 3 years, during which period he/she must not be associated in any capacity with the company. 

Sounds interesting? Do you think you can see yourself as an independent director in a big, reputed company? We can help you get there! Contact our counsellors on +91 98186 78383 (10.00 am-8.00 pm IST) or email us at counselling@lawsikho.in, to know more.