Drishti Arora, OP Jindal Global University
Introduction
Board members have a fiduciary duty to the company's shareholders because one of their roles is to convey shareholders' interests to management. Members of the board monitor management's operations and work to keep the company in business. Any act of commission or omission by a director is subject to liability. They ought to maintain their reputation. While independent directors may engage in passive monitoring, if they are informed of a decision where there is a larger chance that negligence will be detected, they may choose to quit board rather than face the repercussions. In such cases, the resignation of a director may have an impact on the governance of the company.
Although there have been a variety of improvements in corporate governance, the adoption of Clause 49 of the Stock Exchange Listing Agreement by SEBI in 2000 is an important step taken to encourage independent directors to be involved in functionality of the company.1 Clause 49 specifies the need for independent directors to serve as a board member in a firm; (ii) provides a definition of independence (albeit with modifications throughout time); and (iii) outlines the specific responsibilities and liabilities of independent directors.
