Independent directors - new incidents old problems

After the recent botched attempt by Satyam to merge with a company belonging to the "promoters", the role of independent directors on the boards of companies had been brought into focus. Now comes the news that the Andhra police are looking at ways to implicate Mr. Nimesh Kampani in a case which relates to defaults by Nagarjuna Finance.

In the case of Nagarjuna, it appears that Mr. Kampani was not on the board at the time when the company defaulted to depositors. Prima facie, it appears to be a case of harrasing a person for something over which he would have had little control, and perhaps no knowledge. This, once again, highlights the need to have a specialised law enforcement division within the police force that deals with white collar financial crime.

However, it also calls into question the role of and expectations from independent directors. If they are not to be held responsible for day-to-day executive decisions, and have not proven themselves capable of acting on behalf of minority shareholders when it comes to strategic decisions, why have them? And, when does one penalise inaction (at best) and malafide action (at worst) on the part of independent directors? Is loss of reputation a good enough penalty, or should there be a more serious penalty including possible financial liability and/or possibility of imprisonment. In all this, we should not forget that a company with a properly functional board would benefit from the experience and oversight of external members who monitor corporate performance and keep the management on their toes.  

Agency theory just got more complicated.