Corporates should have statutory regulations for internal control system and internal audit to make the work of Independent Directors (ID) really independent and not accountable in law for day to day happening. This will also provide them adequate immunity to safeguard their interests against potential actions.

PHD Chamber’s Task Force on Corporate Governance has come up with some important and thought provoking suggestions to make role of IDs beneficial to the organization and an asset. According to PHD Chamber a model code of conduct should be prescribed for the IDs.

The internal auditors’ responsibility should be increased to go beyond being answerable to the management of the company.  The internal auditor should be given the necessary teeth and also independence.  The internal auditor and the statutory auditor, in consultation with each other, could prescribe the broad format for reporting their findings.  Restructuring and strengthening of Institute of Internal Auditors may also be considered.

The expected role of IDs needs to be redefined and re-examined.

The remuneration of IDs should be adequate to commensurate with the time and effort devoted by them and should exclude Employees Stock Options, though commissions could continue. The number of directorships undertaken by the directors should also be limited.

While appointing them consider the candidates varied, relevant experience and in-depth domain knowledge with no fixed tenure.

To strengthen the Audit Committee provide defined qualifications for the members of the Committee.  The Chairman of the Audit Committee should be an Independent Director with defined qualifications and should have the right to seek more information.

The focus of Statutory Auditors should be further expanded beyond verifying the true and fair nature of financial statements.  Companies - particularly listed companies should voluntarily have periodical forensic audits.

There is an urgent need to increase certain disclosures and redefine focus by identifying potential areas of fraud and misstatements and increasing the disclosure obligations and continuously reviewing the standards for those areas.  Prescribing a minimum period prior to the Board meetings for furnishing the relevant information to the Board will also help strengthen it.

There is a need to expand the responsibility for the veracity of financial statements within the management.

According to PHD Chamber ,setting up a time bound Commission of Enquiries may be the right way of investigating into the matter rather than having fast track investigation and multiple agencies for the purpose.

Serious Fraud Investigation Officer (SFIO) should be provided with greater teeth to perform its designated role of investigating complex and serious cases of fraud with clearly defined powers to determine the extent of fraud, to prosecute the crime and recover the proceeds.

Though the law does not provide for any mandatory provision towards a whistle blower policy but PHD Chamber feels that whistle blower is very important and there should be a system in place to protect the whistle blower in case he highlights some wrong doings in the company.

According to PHD Chamber the companies should consider having an independent secretarial auditor with a well defined compliance role, in addition to the Company Secretary, for better due diligence.

Anjula Singh Solanky
Dy. Secretary-Media Relations
PHD Chamber of Commerce and Industry