Earlier, any form of disruption or failure of a company immediately led to people questioning over the capability of the company and its auditors. However, there is one more: the independent directors.
The term ‘independent directors’ came into limelight in the Companies Act 2013. Despite having a separate code of conduct for them as per the Act, their independence has been questioned many times and tagged along with the downfall of a company.
In order to deal with it, the Ministry of Corporate Affairs has come up with an online proficiency self-assessment test for independent directors. The ministry has also enacted The Companies (Creation and Maintenance of Databank of Independent Directors) Rules 2019.
Here’s a brief insight into the new rulebook.
- According to clause 3 of the rules, Indian Institute of Corporate Affairs are required to maintain an online databank of independent directors wherein all the information of the directors will be recorded including any possible criminal proceedings that may have been charged against him.
- Independent directors are mandated to give online self-assessment test covering the company laws, security laws, basic accountancy and other aspects relevant to the responsibilities of an independent director.
- The IICA are entrusted with the job to prepare the study materials and online lessons for the test.
- Companies are required to disclose the marks scored by the independent directors in their annual report.
Are the new set of rule likely to improve the governance of a company?
The endeavour by the MCA is highly commendable. However a simple online assessment may not be the solution to it. The education system of India itself is a proof that clearing a theoretical exam with flying colours doesn’t necessarily imply performing well in real-time duties. With the new rulebook, chances are the number of pragmatic independent directors will be limited. The MCA could have arranged hands-on training for them. The business environment is volatile and on that note, providing the independent directors the necessary trainings based on real life situation. Such initiatives coupled with proper remuneration will boost them and thus enhance the overall productivity of the company.