A risk management and internal control study jointly conducted by the industry states that majority of independent directors on the boards of Indian companies are reluctant to accept new positions as directors and are, instead, protected against reputational damage and unfair prosecution. Prefers advisory roles because of insufficient security. body Confederation of Indian Industry (CII) and consulting firm Protiviti.
Of the 100 independent directors who participated in the study, 81 percent said there was no legal protection against unfair prosecution or reputation damage. According to the study.
Several independent directors also said that safeguards under the Companies Act, 2013 could be debated and they were vulnerable to wrongful prosecution. Survey participants said that while the Companies Act defines safeguards for independent directors, many other Acts do not make such distinctions, resulting in potential financial, legal and reputational risk. Unlike companies, which have in-house teams to fight legal battles, independent directors are often left to fend for themselves, causing both financial and reputational damage.
In addition, 70% of study participants said, until recently, legal action against such directors had peaked, resulting in calls from boards over concerns of associated liability and hesitation in considering taking on new positions and increasing preference for advisory roles. There were massive resignations. Independent directors are favoring reputed organizations with high corporate governance standards and avoiding smaller firms.
Internal controls are not as strong as reported in the annual report and many companies have a casual approach to control mechanisms, 89% of independent directors surveyed said, internalizing corporations to maintain high corporate governance levels Highlighting the role of control.
“This is often treated as a tick-in-the-box exercise. Control testing is often done at the transactional level and does not extend to the major risks facing the company at the enterprise level. Other reasons It cited weak compliance and internal control systems, poor auditing practices, and a lack of auditors’ independence,” the study said.
About 60% of independent directors said they do not have sufficient resources to verify the health of internal controls. He also highlighted audits as a major challenge for them to execute their responsibilities.
The auditors do not provide adequate inputs and there was a need for improvement in the manner in which they discharge their duties. Considering recent instances of fraud, audit standards should be improved and focus should be on key risks such as cyber and data security, fraud, investment, environmental, social and corporate governance risks, said 52% of independent directors , the study.
About 55% of the respondents said that companies should strengthen risk management systems and processes.
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