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12/15/2005

corporate governance and davinder singh

davinder singh wrote a one page article in the straits times on corporate governance. for him to devote so much time, his time is very expensive, it means it is a serious issue that warrants a lot of attention. for corporate governance to be effective, he touches on many pertinent factors that have to be pieced together. these include ethics, good systems and practices, educating the shareholders, role of the press, role of enforcing agencies and regulators, managing family interests, and whistle blowing. davinder has covered all grounds except one which i find it very uncomfortable to be left out. i have suggested to the relevant bodies that independent directors must be really independent. for this to be true, independent directors must be appointed or be provided by an independent organisation unrelated to the companies they are to serve. their independence shall include remuneration and terms of tenure. by detaching independent directors from companies, they will not be beholden to the organisations and can then be more emboldened to question the practices of the organisations. the more the independent directors excelled in checking wrongdoings in companies, the higher will be their profiles, and the less welcome they will be in the boards of companies. on the other hand, they will stand up as the champions of the small shareholders. so it is very vital that their appointments to the boards be out of the hands of the companies. two organisations can take on this role, the stock exchange or the sias. both have an interest to want to see companies tow the line and be proper in the conduct of their businesses. under the current system, independent directors are invited and appointed by the company's management or ceo and paid by the companies. the extension of their tenure is also dependent on the goodwill of the management and are expected to play ball. how are independent directors going to be independent under such a system? an over zealous director will soon work himself out of the invitation list. the reason is obvious. for corporate governance to be effective, we need an independent body to appoint the independent directors.

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