Role of Independent directors in Governance

Independent directors (ID)should not function like the “waterboys” or reserves on a cricket field; just hanging in there while the executives decide and do as they please and play the game. The corporate governance structure hinges on the IDs, who are supposed to bring objectivity to the oversight function of the board and improve its effectiveness. They have to show a high level of commitment and diligence to identify signals and red flags that indicate that something’s not right.
The need of the hour is for the regulators (SEC)to redesign the rules along with their focus on Related party transactions. All directors and specifically IDs should be made responsible for the oversight on the management of the risk of fraud. The role of IDs in fraud prevention and detection has come under the direct scanner of regulators, members and other stakeholders due to the new regulations in the US and UK and high-profile instances of fraud.
In recent times I have experienced IDs taking direct interest in fraud risk management frameworks to mitigate the risk of fraud. This is more regular in the banking and insurance sectors but the others will catch up soon. Some IDs start with all good intentions and are a perfect “new broom” and subsequently, they fall in line with the system of doing nothing and join the others, confirming the adage ‘when in Rome do as the Romans do’.

About surenraj

“Views expressed are my own”
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