The Securities and Exchange Board of India's new corporate governance norms, that limits number of independent directors, is a welcome move, but would mean 97 people resigning from 283 independent directorships, says Pranav Haldea, Managing Director, PRIME Database.
According to the new norms, each board should have a woman director and a person can serve as an independent director on the boards of maximum seven listed companies and maximum three listed companies in case the person is serving as a whole time director in a listed company.
Also read: Independent directors will have to give reasons to quitAccording to the report by indianboards.com, a joint initiative of PRIME Database and NSE, the person with the maximum number of directorships in listed companies is Pradip Kumar Khaitan with 14 directorships.
More worrying, however, is the present state of compliance with Clause 49 of the Listing Agreement regarding composition of board, says the report. According to Haldea, as many as 17 percent of the NSE-listed companies (247 companies) are presently non-compliant.
"With Sebi's new norms of not treating nominee directors as independent, the non-compliance will go up to 22 percent (319 companies). Presently, nominee directors are being considered independent in as many as 382 cases in 227 companies. In 104 of these companies, conversion from independent to non-independent shall make the company non-compliant with Clause 49"," he says.
Regarding tenure, while the new Companies Act has mandated that an Independent Director cannot serve on the board of a company for more than two successive terms of five years each, this is on a prospective basis, which means that this provision would take effect only after ten years. This too is a positive step, Haldea says.
According to indianboards.com, 1287 of a total of 6050 independent directorship positions (21 percent) in as many as 660 of the 1456 companies listed on NSE have already crossed tenure of 10 years as on February 21 , 2014.
Significantly, as high as 48 percent of all independent directorship positions have crossed five years. The longest serving Independent Director on the board of a company is Klaus Carl Uebel having been on the board of Hercules Hoists Ltd. for 51 years.
While a fixed-term for independent directors is favourable, "it would have served a better purpose in case both the Companies Act and SEBI would have made this provision applicable immediately, with, of course, a compliance leeway of one year. Effectively, no new independent director faces are likely to be seen at least for the next 5 years as a result of this provision," Haldea highlights.(Posted by Ritika Dange)
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