Independent Directors strengthen audit

by Ashish K Bhattacharyya for Business Standard, February 21st, 2011.

The board of directors of a listed company is primarily an oversight board. It oversees the management of the company to ensure that the interest of non-controlling shareholders is protected. It also functions as advisory board. Independent directors bring diverse knowledge and expertise in the board room and the CEO uses the knowledge pool in addressing issues being faced by the company.

The most important function of a monitoring board is to provide direction to the company. In the previous essay, in this space, I argued that it is a myth that the board of directors provides direction to the company in which the promoter (e.g. government, family and a multinational company) holds the controlling interest because the prom-oter does not want to give up the absolute power of formulating str-ategies. In a professionally mana-ged company in which no indivi-dual or group holds significant voting right, the strategies are formulated by the CEO. The board finds it difficult to propose alternative stra-tegies or to audit the strategy proposed by the CEO due to the knowledge gap between the CEO and independent directors. (continue reading… )

 

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