The idea of the independent director for public listed companies is relatively new.

Before 1970,s it was

believed that board of director is compulsory part of management committee who helped by the
people who can have affect. Most recently a series of failure of corporate governance all around the
worlds trigged the idea of changes of rules of new requirement for directors and also change in
policies. as a result , in Australia , in 2003 Australian security exchange (AXS) governance council
recommend guideline for majority of the directors should be independent and the failures of this must
disclose the facts in annual reports. (Alison Kahler, 2016)Independent director are expected to be
independent from judgement and act as a trustee for the shareholders.
The requirement for independence of director is only based on the idea not to be in any conflict
between their personal interest and those who serve. According to security exchange commission
governance independent directors are not part of the management committee and free of any
business or relationship that could materially of interfamily effect on independent director judgement.
It means they should be fully aware of the company related issues. Independent director apart from
receiving remuneration from company doesnt Have any relation and transaction with the company.
They must not have any position at board level or at the level below, they must not have been a
partner, executive, shareholder, supplier, customer , lesser or lessee of the company. As law do not
define clearly in term of role and liability so there are lot of expectation gap between what independent
director and what other stakeholder expect them to do. (Singh, 2012)
In Australia regulation for independence of director occure in both way directly and indirectly.
Australian stock exchange (ASX) has developed some principle and recommendation for independent
director. The appointment of independent director is subject to bring more accountability in the
company. Independent director can play a crucial role regarding objectivity of the decision by playing
a supervisory role. In March 2003, AXS corporate governance council release it principle of good
corporate governance and recommendation. A rewritten 2nd edition was released in 2007, a new
recommendation about remuneration committee were added in revised 2 nd edition in 2010. On 27
March 2014 a new revised 3rd edition to take development of global development in corporate
governance was released with eight principles and 29 recommendations.
Principle 1: Lay solid foundation for management and oversight.
Recommendations

A listed company should disclose the role and responsibilities of its management and board and also
should explain how their performance will be measured and evaluated and also express all those
matter related to board and those related to management
A listed company should appropriate check before electing and re electing a person as a director and
provide all the information relevant to decision to security holder.
There must be a written agreement with each director with all term and conditions of appointment.
The company secretary of a company should be directly responsible to board .the entity should
disclose policy and at the end of each reporting period , the measureable objective set by the board
regarding gender diversity in accordance with diversity policy and progress toward the goal.
A listed company should disclose a process for periodically evaluation the performance of the senior
executive, board , committees and individual directors disclose in relation with each reporting period
weather a performance evaluation was undertake according to policy and process.
Principle 2: structure the board to add value
Recommendations
A listed company should have a board of appropriate size, skill and commandment to discharge their
duties carefully and effectively
Entity must have nomination committee which have at least three member chaired by independent
director, charter and member of committee and at the end of each reporting period individual
attendance of the members but if doesnt have a nomination committee disclose the fact.
The independent director should not be the same person as the COE of the company and must
provide appropriate skill and development opportunities for independent director to perform their role
effectively.
Principle 3: promote ethical and decision making
A listed entity must have code of conduct for it director, executives and employees and disclose it
because investor and shareholder expect responsibly and ethically in all aspect

Principle 4: safeguard integrity in financial reporting

A listed entity should have an audit committee has at least three member all of them should be non
executive director and majority should be independent director. And at the end of each reporting
period attendance of all members should be disclose if not have committee disclose the fact and
process its employees follow for appointment and removal of auditor
Principle 5: make timely and balance disclosure
Under the listing rules for complying continuous discloser i listed company must have written policy so
that individual and investor has timely information regarding financial statement, performance and
governance.
Principle 6: Respect the rights of security holders
Recommendations. A listed company should provide information about its governance ,director and
other stakeholder electronically with their detail profile at any time. They should also prove their
financial statement, announcement and meeting to its shareholders.
Principle 7: recognise and manage risk
A listed company must have a committee under the chair of independent director with at least three
member to oversee the risk and must make recommendation to board about any fraud or weakness of
internal control
Principle 8: Remunerate fairly and responsibly
A listed company should disclose about its remuneration of directors ,senior executive to retain and
attract them. A remuneration committee should work under the chair of independent director but if they
dont have a committee they must disclose its fact and process in their annual report (zandstra, 2007)
Importance of independent director
For a listed company it is apparently important to have a qualified and independent person who is
able to specify entire judgement without favouring to any group ,work for the best interest of
shareholder and beneficiary . Andrew boal (2014) in his report he state that due to independent
directors the superannuation fund in Australia has a significant effect in his growth and it has a 105%

of GDP growing according to data 2013.in the recent month due to bad governance in most of the
organization the need of independent director trigged because independent director always work for
the best of the organization with due care and have no conflict of interest. Independent director are
not only depend on the CEO or the company president but he always keep an eye open to all
ground of the company. in a family business independent director is too much important because he
will bring expertise and innovation in the business which was only relying on traditions. He will also
act as a natural between owner and non-family manager. In conclusion having independent
directors is a root of great value to the business and family as well.
Barriers to the effectiveness of the role of independent directors
It is argued that interest of independent director is artificial in the company as compare the managers
because they have more knowledge and experience of the company. independent directors are more
conservative and poor in financial decion making because they are spending other peoples money so
there is more business risk. and also in term of loyalty those who spend money have interest in
company will be more loyal due to business familiarity ,long service and experience as compare to the
independent director(zandstra, 2007)

Alison Kahler,. (2016). Independent directors a must for superannuation funds. Retrieved from
http://www.companydirectors.com.au/general/header/media/media-releases/2015/independentdirectors-a-must-for-superannuation-funds
(2016) (3rd ed.). ASX Corporate Governance Council. Retrieved from
http://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf
Gay, G. & Simnett, R. (2016). Auditing and assurance services in Australia. North Ryde, N.S.W.:
McGraw-Hill Education.
http://www.investordaily.com.au/investor-weekly/opinion/35512-do-we-need-independent-directors,.
(2014). Do we need independent directors?.
Singh, A. (2012). | Corporate governance: Changing regulatory scenario and the role of the
independent director. http://www.ey.com/. Retrieved 16 August 2016, from
http://www.ey.com/Publication/vwLUAssets/Corporate_governance_for_changing/
$FILE/Corporate_governance_for_changing_regulatory_scenario_and_the_role_of_the_independent
_director_EY_FIDS.pdf
zandstra, i. (2007). pros and cons of independent directors (1st ed.). Retrieved from
http://coopsnsw.coop/wp-content/uploads/2015/11/independent-directors.pdf