Introduction: Independence on Paper, Accountability in Practice
A company’s success is often measured through revenue growth, profitability, market capitalisation and shareholder returns. But there is another factor that determines its long-term credibility: corporate governance.
At the centre of this governance framework lies an important institution — the Independent Director.
Independent directors are expected to act as a bridge between company management, shareholders and other stakeholders. They are responsible for bringing objectivity to boardroom discussions, questioning management decisions and safeguarding the interests of minority shareholders.
But an important question deserves attention:
If independent directors are appointed to ensure accountability, who ensures that they remain truly independent?
In an environment where corporate decisions involve increasing financial complexity, regulatory scrutiny and shareholder expectations, the effectiveness of independent directors has become more important than ever.
1. Who Is an Independent Director?
Under Section 149(6) of the Companies Act, 2013, an independent director is a director who satisfies prescribed criteria relating to integrity, expertise, experience, independence from promoters and the absence of disqualifying relationships with the company.
In simple terms, an independent director should be capable of exercising objective judgement without being influenced by the company’s promoters or management.
Under Section 149(4), every listed public company must have at least one-third of its total number of directors as independent directors.
Their appointment is not merely a regulatory formality. It is intended to strengthen the quality of corporate decision-making.
2. What Are the Responsibilities of Independent Directors?
The role of independent directors extends beyond attending board meetings and approving resolutions.
Their responsibilities include:
Protecting Minority Shareholders: Ensuring that decisions are not unfairly influenced by promoters or controlling shareholders.
Monitoring Financial Reporting: Examining the integrity of financial information and the effectiveness of internal financial controls.
Risk Management: Evaluating business risks, compliance systems and management responses to emerging threats.
Reviewing Management Performance: Bringing an objective perspective to executive appointments, remuneration and performance evaluation.
Ensuring Ethical Conduct: Promoting transparency, accountability and responsible corporate behaviour.
Schedule IV of the Companies Act, 2013 provides a detailed code for the professional conduct, role and duties of independent directors.
3. Recent Developments: Why Board Independence Is Back in Focus
Recent developments in India’s corporate environment demonstrate why board independence and governance standards deserve greater attention.
Case Study 1: Coforge – Strengthening Board Governance
In October 2026, Coforge initiated a search for two additional independent directors following the resignations of its chairman O. P. Bhatt and nomination and remuneration committee chairman D. K. Singh.
The development brought renewed attention to board composition, leadership continuity and the importance of independent oversight.
It also highlights how changes in board leadership can create an opportunity for companies to reassess their governance structures.
Case Study 2: NBCC – The Challenge of Board Composition Compliance
NBCC’s FY 2025–26 annual report disclosed observations regarding non-compliance with prescribed board composition requirements, including the required representation of independent directors.
The company explained that appointments of board-level independent directors were within the authority of the administrative ministry and that the required appointments had been requested.
This example highlights an important governance challenge, particularly for public sector enterprises: regulatory compliance can be affected by appointment processes and institutional dependencies.
These developments demonstrate that corporate governance is not just about having rules in place. It is also about ensuring that organisations can implement them effectively.
4. The Regulatory Framework: How Does India Protect Board Independence?
India has established a comprehensive legal framework governing independent directors.
A. Companies Act, 2013
- Section 149: Appointment and qualifications of independent directors.
- Section 150: Manner of selection and databank of independent directors.
- Section 166: Duties of directors.
- Section 177: Audit Committee.
- Section 178: Nomination and Remuneration Committee.
- Schedule IV: Code for independent directors.
B. SEBI (LODR) Regulations, 2015
Regulation 17 establishes requirements relating to board composition.
Regulation 25 specifically deals with obligations concerning independent directors, including their meetings and other governance requirements.
These provisions aim to strengthen board accountability and ensure that independent directors can perform their responsibilities effectively.
5. The Independence Challenge: Where Can the System Fall Short?
Despite a strong legal framework, several practical challenges may affect the effectiveness of independent directors.
Promoter Influence: In promoter-driven businesses, independent directors may face challenges when questioning decisions supported by influential promoters.
Professional Relationships: Existing professional or business relationships can create perceived or actual conflicts of interest.
Information Asymmetry: Independent directors depend significantly on information supplied by management. Inadequate or delayed information can weaken their ability to make informed decisions.
Time Constraints: Directors serving on multiple boards may struggle to devote sufficient attention to every organisation.
Fear of Reputational or Legal Consequences: The possibility of regulatory scrutiny and litigation may also influence how directors approach difficult boardroom decisions.
The existence of these challenges does not mean that independent directors are ineffective. It means that genuine independence requires continuous attention and institutional support.
6. Why Independent Directors Matter to Investors
For investors, particularly minority shareholders, independent directors provide an important layer of protection.
An effective board can help identify questionable related-party transactions, strengthen financial oversight, challenge excessive executive remuneration and improve the quality of corporate disclosures.
Strong governance can also improve investor confidence, reduce information asymmetry and support long-term corporate credibility.
In capital markets, trust is an economic asset. Companies that demonstrate transparent and accountable governance are better positioned to build sustainable relationships with investors.
7. What Can Make Independent Directors More Effective?
To strengthen board independence, companies should move beyond minimum regulatory compliance.
Some important measures include:
- Transparent and merit-based selection of independent directors.
- Proper disclosure and management of conflicts of interest.
- Timely access to accurate financial and operational information.
- Regular board and committee performance evaluations.
- Meaningful participation in audit and risk management discussions.
- Continuous professional development and industry awareness.
- A board culture that encourages constructive questioning and dissent.
Most importantly, independent directors must be willing to ask difficult questions, even when those questions challenge the decisions of senior management.
8. A New Dimension: The Role of Independent Directors in the AI Era
Corporate governance responsibilities are also evolving with technology.
Artificial intelligence, cybersecurity risks, data protection, algorithmic decision-making and digital fraud are creating new challenges for businesses.
Independent directors must increasingly understand how technology-related risks affect financial reporting, internal controls, operational resilience and corporate reputation.
A board that understands traditional financial risks but ignores emerging digital risks may struggle to protect long-term shareholder value.
Therefore, technological awareness is becoming an important element of effective board oversight.
Conclusion: Independence Must Be Practised, Not Just Declared
India’s corporate governance framework has established a significant role for independent directors in promoting accountability and transparency.
However, the true value of an independent director cannot be measured by the number of board meetings attended, the resolutions approved or the regulatory requirements fulfilled.
It must be measured by the quality of questions asked, the risks identified, the interests protected and the independence demonstrated when difficult decisions arise.
A truly independent director is not someone who simply agrees with the board. It is someone who has the courage, knowledge and integrity to disagree when necessary.
Because strong corporate governance does not begin with the appointment of independent directors. It begins when those directors are genuinely free to exercise independent judgement.
