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Monday, September 5, 2011

JJ Irani resignation from Everonn-is he fit to be an independent director?

Last Saturday, I opened Mint to read the shocking news of Everonn systems independent director Dr JJ Irani having resigned(http://www.livemint.com/2011/09/03011242/JJ-Irani-quits-Everonn-govt-s.html?h=A1). In an interview to Mint, he had said that I value my name more than anything else. I associate myself with corporate governance. A smear has been created and I don’t want to associate with a company that is being investigated. It is precisely this attitude that I take contention with.

As a senior Tata Group leader, drafter of the companies Bill 2009 and a renowed professional, Dr JJ Irani needs no introduction to those tracking the Indian financial sector. His practical and professional corporate governance experience made him perform a due diligence on Everonn and convince himself of its business mode, before he accepted an independent director's position. I'd blogged earlier(http://thescambuster.blogspot.com/2011/07/independent-directorsauditors-not.html) on this phenomenon of independent directors fleeing scam hit companies in droves. In case of Dr Irani, it is even more perverse than described in that post because
  1. As a chartered accountant, he's well equipped to appreciate and assess the merits and issues of the tax case and guide the company
  2. While directors are not bound to stick with the company through 'thick and thin', it makes no sense to appoint a director who will abandon you at the first sign of distress. 
  3. Unlike Satyam, the business model is not in dispute here, only the management integrity is. 
  4. By resigning, he has made it worst for the company when it needed the support of other investors the most. Now, even the Indian Govt(which had given 25% of national skilling program contracts) to Everonn, is worried.
  5. He had the competence, training and reputation to steer the company out of waters like how the 3 independent directors appointed later had done for Satyam. Unlike the earlier Satyam directors, this tax episode had not sullied the independent directors at all. 
As a company considering to appoint an independent director, I would certainly hesitate now because why should I pay them hefty fees/ESOPs/training if they will eventually ditch me in times of distress? As it is, the Indian Corporate Affairs Ministry(MCA) does not prosecute independent directors for routine law violations by companies, thus giving them additional security. The directors should rely on this and support the company in its kind of needs. Even the full time employees do not have a fiduciary duty to the company like how independent directors do.  This duty should be discharged when the time comes, not relinquished.  This single event made me lose my respect for persons who place their personal 'reputation' over helping investors and the companies.

1 comment:

TanMan said...

beats the purpose of having an independent director on board. it's time they re-assessed the role of an independent director.