The maximum number of listed companies in which an individual can serve as a director should not be more than seven, proposed the Institute of Company Secretaries of India (ICSI) to the ministry of corporate affairs (MCA). The proposal came in the light of ICSI view that a director needs to spend enough time to understand a company if he is to be involved in the decision-making process. At present, a person can hold the directorship of 15 listed companies.
Also, an independent director’s tenure in a company should not be more than six years suggests ICSI. Currently, there is no fixed tenure for an independent director in a company for it is the board that decides his term of office. According to ICSI, a long tenure is likely to result in a friendly relationship between independent directors and the management that, in turn, might affect the director’s ability to be a watchdog.
Post the Satyam fraud, ICSI’s core group had been working on the guidelines to strengthen the corporate governance framework in India. The recommendations were prepared by the core group constituted by the council of the institute to analyse the issues arising from the Satyam episode and to make suitable policy and regulatory changes in the legal framework.
As part of its recommendations on corporate governance to the ministry, ICSI has also suggested that directors of a company should be given an induction training that would enable them to gain an understanding of company’s business, its products, financial position, responsibilities and their rights.
The institute has also suggested that having a paid-up capital of Rs 5 crore or more should be made mandatory with respect to all public limited companies to ensure a company complies with applicable legal and regulatory requirements.
The institute also suggests that the Directors Responsibility Statement that comes under Clause 120 of the Companies Bill should not only relate to accounts and internal financial controls but should also include a statement that directors devised measures to ensure compliance of all laws applicable to a company and that such systems were adequate and operating effectively.