Independent Directors Part II

I had written Why Independent Directors are ineffective here sometime in May 2009.

Some time ago I read about Relics in Board rooms, where the types were categorized by a Prime Database study that classified in 4 broad types

75% Home directors — known personally to promoters — relatives, friends. Several loopholes exist in the Companies Act allowing their induction.

15% Value directors — people that either bring knowledge and expertise to the company — lawyers, technocrats etc. or provide it with a strong network.

5% Celebrity directors — inducted to add an aura of respectability & news value to the company including film stars, sportsmen etc.

5% PSU directors — typically appointed by political high command or ministers concerned, most are either politicians or bureaucrats.

So finally except 10–15% do Independent Directors really add value? And why does the Companies Act not get modified? Everyone I spoke to really had no answer.

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Originally published at anagghdesai.wordpress.com on August 23, 2009.