An Aimless Pursuit of Corporate Independence: A Critique of SEBI’s Efforts to Strengthen Independent Directors

Abstract

Independent directors are considered to be the panacea for all corporate evils. It is believed that these external directors can effectively act as corporate watchdogs, thereby reducing the agency conflicts witnessed in corporate entities. With this objective, the Indian legislature introduced the concept of independent directors in 2013. Academic work and practical experience since then have brought to light the failure of these directors to bring in corporate independence. The fundamental flaw of the existing Indian regime of independent directors stems from the transplantation of the concept of independent directors from the UK and the US, where the agency problems faced are different from the ones witnessed in India. Recently, the Securities and Exchange Board of India (SEBI) and the Ministry of Corporate Affairs (MCA) have introduced several amendments and reforms to bolster the position of independent directors on corporate boards. According to the authors, all these amendments are shortsighted in nature, as they were introduced to remedy some issues cropping up in the Indian corporate landscape, rather than changing the regulatory framework towards the achievement of a pre-defined Indian concept of corporate independence. The successful pursuit of the goal of corporate independence requires the Indian regulators to have a defined conception of corporate independence, basis which the regulators should revamp the Indian legal framework.