Independent Directors And Corporate Governance Research Paper

ACF B.E INDIVIDUAL ASSIGNMENT: INDEPENDENT DIRECTORS AND CORPORATE GOVERNANCE

LAKSHYA GARHWAL

BA.M.A (140147)

Table of Contents

INTRODUCTION 3

ANALYSIS 4

CONCLUSION 8

REFERENCES 9

APPENDIX 10

INTRODUCTION

An Independent Director is an individual who can independently judge the performance of all the levels of management in a corporation. The individual is recruited externally with respect in ensuring no direct or indirect connection/relation to a corporation except for the position they hold in the Board of the corporation or minor stakes in its shares.

As the topic states, the research done hereafter is to find evidences that support the vital need of Independent Directors in corporate governance in accordance with

Their role as an advisor is to strategically enhance the corporation’s value by ensuring effective daily operation decisions and processing the external connections of a corporation.

Responsibilities and True Independence

The responsibilities of Independent Directors include to keep an oversight and report all questionable activities, owe all directors equal degree of respect, protect corporations and shareholders’ interests and bear liabilities in case of ignorance. The true independence of Independent Directors in order to carry out their responsibilities has been compromised to some extent in reality. The following reasons are a contrast between Independent Director’s responsibilities and the lack of independence in executing it.

• Many corporations utilize their personal contacts to recruit a familiar individual which compromises with their responsibilities of reporting questionable business practices in respect of the interests of shareholders.

• External relations with board members or management of a corporation also reflects upon an individual’s personal independence to responsibly challenge and highlight underperformance or exploitation.

Case Studies – United Kingdoms, United States and

According to Weisbach (1988) a majority of Independent Directors resulted in taking effective decisions of removing underperformers with ease. Another study done by Rosenetein and Wyatt to understand the reaction of market to appointment of Independent Directors shows the rise in share-prices due to increase investors.

Overseas studies done in Australia:

Corporate Performance

According to a study carried out in Australia in 1995, using the sample data of 100 Top Australian between 1985 - 1995, ranked corporations to determine the influence of Independent Directors in corporate performance in terms of its share-price performance and accountability. The studies were done using methodology of researching sample periods of share price movement and accounting performance over the changes in board composition in the time period.

• Results of Share-price data: The results shows minimal evidence of positive rise in share-prices due to the influence of Independent Directors in the board composition, thus stating it to be insignificant.

• Results of Accounting Performance: A regression analysis was done with raw accounting, growth, ratio and ratio growth variables. The raw and growth variables showed minimal or no relation of Independent Directors and corporation’s