The Satyam saga and Corporate Governance
The rapid fall from grace of Satyam Computer Services - one of India's foremost IT outsourcing companies has raised some important concerns around Corporate Governance. Satyam, which was the winner of the Golden Peacock Award for Corporate Governance for 2008, first grabbed headlines when it tried to acquire large chunks of Maytas Infrastructure and Maytas Properties, owned by founder Ramalinga Raju's sons. The move was withdrawn after huge investor backlash, causing shares to fall by 55% on the New York stock exchange, and raising issues on transparency and disclosure. What made matters worse was the fact that the meeting in which the contentious decision to acquire shares of Maytas was chaired by the independent directors of Satyam.
The role of an independent director, is to protect the shareholder from the "family" of the company doing as they please. In Satyam's case these directors were all big name academics and industrialists.
The indian rules say that "not being related to a promoter or having a direct economic benefit from a company, makes a director independent". It however ignores the fact that CEOs, and Academics could become board members purely for the prestige that accompanies the association and can in fact be empathetic to top management. (Read this entry on the blog Initial Private Opinion that discusses some of the fringe benefits accorded to the Satyam Independent Directors)
What is the role of an independent director on a corporate board?
The role of an independent director, is to protect the shareholder from the "family" of the company doing as they please. In Satyam's case these directors were all big name academics and industrialists.
The indian rules say that "not being related to a promoter or having a direct economic benefit from a company, makes a director independent". It however ignores the fact that CEOs, and Academics could become board members purely for the prestige that accompanies the association and can in fact be empathetic to top management. (Read this entry on the blog Initial Private Opinion that discusses some of the fringe benefits accorded to the Satyam Independent Directors)
What is the role of an independent director on a corporate board?