I had written Why Independent Directors are ineffective here sometime in May 2009.

Some time ago I read about Relics in Board rooms, where the types were categorized by a Prime Database study that classified in 4 broad types

75% Home directors - known personally to promoters - relatives, friends. Several loopholes exist in the Companies Act allowing their induction.

15% Value directors - people that either bring knowledge and expertise to the company - lawyers, technocrats etc. or provide it with a strong network.

5% Celebrity directors - inducted to add an aura of respectability & news value to the company including film stars, sportsmen etc.

5% PSU directors - typically appointed by political high command or ministers concerned, most are either politicians or bureaucrats.

So finally except 10-15% do Independent Directors really add value? And why does the Companies Act not get modified? Everyone I spoke to really had no answer.

Post Satyam, there has been a lot of debates, discussions on “Are Independent Directors effective”? Everyone has had something to say about this.

YES! there are some reputed people who have been extremely effective over the years, however the general perception has been to the contrary. There are numerous reasons for this, common which I personally feel are listed below:

1)     A fair number of them have full time responsibilities and are also on several boards, which makes it difficult to do   justice to all of them in the right manner.

2)     They have little on stake in the company on whose board they sit.

3)     Mostly, they are friends of the promoter, other board members.

4)     Little experience in the industry of the company on whose board they are on.

Whilst these are factors that can be overcome, only specific guidelines, laws would ensure this really happens. As also the internal need of wanting this to happen shall play an important role.