Corporate governance and law‐role of independent directors: theory and practice in India

Purpose - The paper seeks to bring focus to the significance of the role of directors in corporate performance. The principles of good governance are not unknown to the Indian traditions. Today adoption of good corporate governance practices has emerged as an integral element for doing business. Understanding how boards impact on corporate performance is a question central to the corporate governance research agenda. Design/methodology/approach - The paper explores the theoretical and historical link to the structure and functioning of the board of directors with special emphasis of the norms established by the Security Exchange Board of India (SEBI). Findings - As global business interest in India keeps growing, so does the expectation that Indian companies must play – and be seen to play – by rules that are clear to international investors. Demands have long been heard for greater transparency in the way Indian companies do business. The reforms, ordained by the SEBI, are laid out in amendments to Clause 49 of the companies listing agreement with Indian stock exchanges, a section that pertains to corporate governance. Among the requirements are: more independent directors on boards and audit committees; a code of conduct for board members; a larger role for the audit committee; mandatory risk assessments and certification by the chief executive officer and chief financial officer of the effectiveness of internal accounting controls. Originality/value - The paper advances the understanding of board structure and performance in Indian corporate governance system by examining the norms established by the SEBI.