The Trilemma of Indian Independent Directors: Concerns and Directions for Reform

Abstract

Independent Directors (IDs) have long been hailed as the ‘monitors’ of India Inc. As the Covid-19 pandemic brought about an unprecedented environment of uncertainty, the risk of unethical conduct on corporate boards also increased manifold. During these times, the monitoring role of IDs gained even more significance. However, studies show that in the year 2020, there was a 45 per cent increase in the rate of resignations by IDs from companies listed on the National Stock Exchange (NSE) as compared to 2019 and an 80 per cent increase when compared to the rate of resignations in 2018. Why are IDs abandoning India Inc.? Is India heading towards another corporate governance crisis? Can the amendments have introduced by the Indian Ministry of Corporate Affairs in 2021 resolve this impending crisis? This paper aims to tackle these questions by analysing the reasons behind this alarming rate of resignations, studying the effects of the same on the share market and discussing a way forward. To do so, this paper examines whether this impending crisis is a result of (1) the gaps in the legislative drafting for the protection of IDs; (2) negative corporate attitude towards ID; (3) or both. The article also undertakes empirical legal research by analysing the fluctuation in share prices of the top 50 companies in India listed on the NSE (by market capitalisation) in response to the announcement of their IDs’ resignation. In doing so, we study the nexus between IDs’ resignation, the reasons thereof, the fluctuation in share price, and trading volume. In the third section, it examines the avenues for averting this crisis of resignation by IDs. The findings of this study indicate that there is a pressing need to revaluate the legal position of IDs in India Inc. Finally, it highlights the avenues for averting this crisis.