Limited tenure for Independent Directors?

Let's start with the governance debate. Until recently, Tata Tea had a Director who had been on the board for more than 40 years. An independent director on Reliance's board has served for over 30 years, as has a director on M&M's board. Colgate Palmolive has an independent director who's been on their board since 1983! That's because regulations in India don't mandate any fixed term for independent directors.

 

Independent directors are appointed for a period of three years at a time, and can serve infinite terms. And that has been the subject of debate for many months. Especially since December last year, when the Ministry of Corporate Affairs or MCA suggested in its Voluntary Corporate Governance Guidelines that an independent director's term be limited to 6 years and the number of terms capped at a maximum 3 but with a three year cooling off period between them. Does India INC agree? Is a 6 year term feasible? Does familiarity really breed dependence? Isha Dalal has experts thinking aloud

 

YP Trivedi, Senior Advocate, Supreme Court

Independence is a state of mind. It is not dependent on tenure, whether it is six years or ten years. A person who is independent will always remain independent and a person seeking his personal benefit will always try to do so.

 

Faith Stevelman, Director-Center of Business Law & Policy, New York Law School

I think it would be very difficult to maintain a forceful degree of objective oversight and the ability to rationally scrutinize the plans and objectives of management at arms length in a truly rational and methodical fashion once close friendships and long-term associations have developed.

 

HP Ranina, Advocate, Supreme Court

But there is another way of looking at it. If a person is truly independent, he will, on the contrary, be able to find out what are the ways by which the management can be held in check.

 

YH Malegam, Chairman Emeritus, SB Billimoria & Co

His understanding of the company is much better if he has been on the board for a long time.

 

Faith Stevelman, Director-Center of Business Law & Policy, New York Law School

There are lots of areas in which independent directors can be helpful where they don't require knowledge of the nuts and bolts of the company.

 

Suresh Talwar, Partner, Talwar Thakore & Associates

The longer the independent director is there, the greater is the fear they have of him because they know he's tough. They know he's tough and he's not a person they can meddle with.

 

Faith Stevelman, Director-Center of Business Law & Policy, New York Law School

The limited tenure tells the independent director that they're out of there anyways. They have more capacity to be candid, to be outspoken, to be objective because this isn't a job that they're going to get to keep indefinitely.

 

Sridar Iyengar, Bessemer Venture Partners & Former CEO, KPMG

Taking me personally, with my own background, after 9-10 years you are not as fresh in the way you are looking at things and I think to bring a different perspective to the board trumps the advantage of somebody continuing beyond a tenure.

 

Suresh Talwar, Partner, Talwar Thakore & Associates

I would concede this. I would say in order to bring fresh blood, each company should be left to take that decision. I don't think it should be imposed. In some companies there is an age limit of 60, in some companies its 65, in some they have gone up to 75. I have stated in some companies that you should have a tenure of 10 years, or 65 or 70 years or whichever comes first and then bring in fresh blood.

 

YP Trivedi, Senior Advocate, Supreme Court

The management which has already got more than 50% of the shareholding either by themselves or with associates, can pick up and choose their directors and even if one director goes away, the second one also that they pick up will be one who is acceptable and amenable to them.

 

Faith Stevelman, Director-Center of Business Law & Policy, New York Law School

I think even the principle of limited tenure tells the board that you are here to do a job. It is not a lifetime office. It is not a position in aristocracy. It is a professional function. As part of that professional function, you're going to come, see what needs to be done, six years to do it and you move on to the next job.

 

Sridar Iyengar, Bessemer Venture Partners & Former CEO, KPMG

Where I would most probably quarrel is whether six is the right number of years. Because to be an effective board member in a company, you come at it with some knowledge of the industry or the company, but it takes you a year or two to understand the dynamics of the company, how the board functions, what are the issues and six sounds to me a little less than the ideal sort of the tenure.

 

HP Ranina, Advocate, Supreme Court

The first term will go only in getting himself familiar with the functioning of the company, what are the nitty-gritties of the company, what is the management structure, what are the checks & balances. Then the next term of three years he will really get involved and if he has to really be effective he will be effective only in the third term.

 

YH Malegam, Chairman Emeritus, SB Billimoria & Co

Quite honestly the better course would be a peer review system which is operating in some countries. Where the directors themselves, on a confidential basis, rate the performance of their colleagues. And whenever a director is due for reappointment, this assessment is made by his colleagues. And if his colleagues believe that he is not really contributing, the chairman tells him, your term is over, we will get someone else. That would be the better course.