Question

what is an independent director and how does this differ from a non-executive director? What are the advantages of independent directors ?

Answer 1

An independent director is a non-executive director who does not have any pecuniary relationship with the company, its promoters, senior management or affiliate companies, is not related to promoters or the senior management.

An independent director is a non-executive director of a company and helps the company in improving corporate credibility and governance standards. Independent directors act as a guide to the company. Their roles broadly include improving corporate credibility and governance standards functioning as a watchdog, and playing a vital role in risk management.

Difference between independent director and non executive director- Non Executive Directors are the directors who are not in the employment of the company they do not involved in the day-to-day running of business but monitor the executive activity and contribute to the development of strategy.Independent Directors are those non executive directors who apart of receiving directors' remuneration, does not have any material pecuniary relationship or transaction with the company or its promoters.

Advantages of independent directors

(1) Expertise not within the firm’s core competency

(2) Provide viewpoints without vested interest

(3) Formality leading to a more professional board environment

(4) Credibility to outside stakeholders