The job of an Independent Director in a big company is a huge, huge burden. You need to understand the company’s business, law, accountancy, psychology, body language, greed, – the list is really endless.
If you are a CA or a lawyer chances are some company will (or would have) approach you to be an ‘Independent Director’. This is an easy job if everything goes on fine. However, if there is a problem – like Satyam, Global Trust Bank, NSEL, Financial Technologies, McX, you are in a big hole. So it is necessary for the I.D. to know what he/she is getting into. There are many indicators available that the company is not doing something straight – but directors are usually the last to know.
We knew about the shit shape of a company to whom a big NBFC was lending – the guy on the board said ‘It is only Rs. 50 lakhs’. Of course the NBFC lost the money.
-Directors have to be alert to every transaction and make sure that there are no attempted frauds
-Directors have to be polite, firm, clear and clean. Greed is so difficult to control, that it is unbelievable what directors can seek from the company. Car, free tickets, usage of guest house is at the bottom of the favors sought 🙂
-The sitting fees and %age of NP is now good enough for a person to be an I D of 3-4 big companies and treat that like a full time profession. Profession of being an Independent Director. Sadly it is not so well developed in India.
– An independent director SHOULD spend his OWN money and find out about the market share, HR conditions, informal feedback, meet analysts – without the CFO, do a independent image research, etc. NOT ENOUGH I.Ds do this.
– Meeting ex-employees, a few vendors at random, consultants, etc. should be done as a regular practice – some of these guys can tell you gut wrenching stories.
When we were doing the valuation of a brokerage company, one of the clerks gave us stunning info about the MD’s trades. We just froze. Such things are RARELY known to I.Ds unless they keep their ear to the ground.
Remember as an ID you need to open your MOUTH at the meeting of the company. Not just to eat the sandwiches, but to ask the RIGHT questions, in the RIGHT TONE, to the RIGHT person. I have met I.Ds who crib about a company OUTSIDE over a peg of whiskey but in the meeting they are happy saying ‘please pass the sugar’ 🙂 and nothing else.
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