Independent directors of Satyam [Get Quote] Computers, who agreed to the company's proposal of buying out two promoter-related companies, failed to be independent in 'spirit', industry captains said.

"Independent directors need to be more active and I would be happy to see more resignations," Adi Godrej [Get Quote], Godrej Group chairman, said today at a corporate governance meeting organised by the Confederation of Indian Industry. "Directors need to maintain their independent spirit."

The Satyam board, including its five independent directors had approved the founder's proposal to buy 51 per cent stake in Maytas Infrastructure and all of Maytas Properties, owned by the family members of Satyam Chairman B Ramalinga Raju.

The decision of acquisition was, however, reversed 12 hours later after investors dumped Satyam's stock and threatened action against the management. Corporate governance should be a "principle-based" system rather than being "rule-based," Godrej said, adding during trying times people look for loopholes. "Corporate governance will be severely tested as India muddles and starts ahead. The real challenge will be in the next 12-18 months as the country manages the downturn," Uday Kotak, executive vice chairman and managing director, Kotak Mahindra Bank [Get Quote], said in the meeting. "Independent governance will be in focus."

Experts felt that in instances of larger issue of change in the entire business focus of the company, the independent director should take the decision to the shareholders before approving.

"Where there is a large issue it should go through a larger audience," Shailesh Haribhakti, Chairman, Haribhakti Group and director on the board of several companies including Pantaloon [Get Quote] Retail India, Dhanalaxmi  Bank and LIC [Get Quote] Pension Fund said. "I am in favour of transparency and independent directors need to go back to the principle of independence in such instances."

Other experts felt independent directors need to be vigilant in protecting minority interest and be `brave' enough to take adequate steps. "It is cumulatively the responsibility of the independent directors to protect the interest of shareholders and strategy of the organisation," Neville Dumasia, executive director, governance, risk & compliance services, KPMG said.

A few independent directors termed the role of Satyam's independent directors as `unpardonable' and acting against the interest of larger shareholders especially when the promoters themselves owned a little more than 8 per cent stake in the company and institutional investors owned more than 45 per cent.

"This is unpardonable," said Rajendra P Chitale, managing partner of M.P. Chitale & Associates and an independent director on the board of National Securities Clearing Corporation Limited, Asset Reconstruction Company (India) Ltd, Hinduja TMT [Get Quote] Limited, Ambuja Cement [Get Quote] Limited, and Reliance Capital [Get Quote] among others. "Honestly the decision was akin to bringing two elephants into the drawing room which could demolish the house."

Captains of industry, however, did not see the need to create more laws but emphasised on the need of enforcement of corporate governance. 

"Enforcement is important. It is no use making more and more rules and laws if you are not willing to enforce it," Godrej said. "Laws in India are quite strong."

Still, India Inc was unanimously appreciative of the investors' activism after Satyam's decision.

"After this incident most of the corporate India will behave in a reasonable fashion," Dumasia said.

Investors were furious about the way Satyam founders undertook the move to invest in a promoter-related company and wanted to know why the management failed to obtain prior consent of shareholders before deciding to invest, which amounted to change of `object clause' of the company.

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