The Securities and Exchange Board of India (SEBI), on March 1, proposed updated rules for the appointment, dismissal and remuneration of independent directors (IDs).
SEBI has proposed that appointment and re-appointment of IDs be subjected to dual approvals – first from shareholders and majority of minority shareholders and then the promoter and promoter group, Mint reported.
In case a candidate does not pass both approval rounds, the company will either propose a new candidate or same person after a 90-days cooling period and with reasons for proposing the same person.
In case of removal of an ID, a second vote of all shareholders can be called after a cooling period of 90 days, but not more than 120 days.
In case of resignation of an ID from the board such as preoccupation, personal reasons or other commitments, the mandatory cooling off period will be of 1 year, before the person is allowed to join another board.
The SEBI consultation paper also proposes that the process of selection of ID by the nomination and remuneration committee (NRC) be tightened. The NRC will be required to evaluate experience, knowledge and skills while shortlisting candidates and appoint key managerial personnel (KMP) and employees of promoter group companies as ID with more checks and balances.
On remuneration of IDs, the regulator has sought feedback from the public. This is particularly in regards to their pay being linked to profits and how this could “encourage short term measures and lead to conflicts,” the report said.
This concern of performance-linked pay outs may be addressed by “permitting ESOPs to IDs with a long vesting period”.
The proposal is open for public consultation till April 1 and could be revised based on feedback. At present, there is “no clear timeline of implementation,” the report added.
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