The Sarbanes and Oxley Act of 2002 required firms to have a majority of independent directors on their board. Critically discuss the rationale of such a requirement.

Sarbanes and Oxley Act, 2002 requires majority of Independent Directors in their Board. The rationale of such requirement can be understood as follows:

An Independent Director is the one who has not accepted any compensation from the Company other than as a Director. Since Independent Directors don't have any pecuniary interest and relations or transactions with the Company or its promoters, they are expected to make decisions which are independent of those who have a controlling stake in the company and also which are in the overall interest of the company. When majority of Independent Directors forms the Board, the Board is then considered to be fair and transparent to its stakeholders. They provide an ethical conduct of business and protects the minority stakeholders. Board helps in risk management and review by identifying, analysing and economically controlling all the risks in the most benificial manner for the company. They provide a proper disclosure about the working of the company and maintain balance while resolving conflicts. Independent Directors forming majority of Board enables the Board in investing funds and business transactions which are profitable for the company rather than on the basis of anyones influence. The Board also facilitate statutory compliance and better internal control within the Organisation.