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The Companies Bill 2009 has dealt with independent directors quite extensively. The Standing Committee has spent significant time on issues relating to independent directors as evident from the report of the Committee. This shows the criticality of the effectiveness of independent directors in corporate governance.
The Government has said that the Department of Public Enterprises has so far not issued any guidelines regarding the assessment of working of non-official Directors on the Board of Central Public Sector Enterprises (CPSEs).
The role of independent directors (IDs) on the board of Indian companies will be clarified in the new Companies Bill and their responsibilities will be made finite in terms of what they are answerable for, said Union Corporate Affairs Minister Salman Khurshid.
A parliamentary panel of experts studying the new Companies Bill is likely to come up with suggestions in this regard, said a corporate affairs ministry official, requesting anonymity. The development assumes significance in the wake of the government’s renewed efforts to quicken the share sales of many state-owned firms that are hamstrung by the lack of a requisite number of independent directors on boards. Market regulator Sebi’s guidelines require that 50% of a company board should be stuffed with independent directors.
The Government has said that the Companies Act, 1956 does not provide for appointment of Independent Directors. But, as per clause 49 of the Listing Agreement, all the listed companies are required to appoint Independent Directors. Giving this information in written reply to a question in the Lok Sabha today, the Minsiter for Corporate Affairs,
The government may empower independent directors and company secretaries to enforce corporate governance norms, having made compliance voluntary for enterprises. The Institute of Company Secretaries of India (ICSI), a statutory body set up by the government, has suggested a set of best practices that company secretaries on board of companies have to follow.
The Institute of Chartered Accountants of India (ICAI) and the Institute of Company Secretaries of India (ICSI) have urged the government to lay down guidelines for independent directors, including their terms of appointment, responsibilities and tenure in the company.
The Companies Bill, 2009 has not proposed any upper cap on the number of independent directors, but, sub-clause (3) of clause 132 of the Companies Bill, 2009 provides that at least one-third of total directors shall be independent directors to be appointed in every listed company having certain amount of paid up capital to be prescribed by the Central Government.
With the aggressive disinvestment of PSUs being planned for the coming months, the government is likely to introduce a fixed time-frame during which the nomination of independent directors should be completed by state-run companies.
The Institute of Company Secretaries of India (ICSI) has recommended to the Government that the maximum number of listed companies where one can be a director be restricted to seven. ICSI has also mooted capping the tenure of independent directors at six years. In its report on ‘Strengthening Corporate Governance Framework’ submitted to the Corporate Affairs Minister, Mr Salman Khursheed, ICSI suggested a clear demarcation of the roles and responsibilities of the Chairman of the Board and that of the Managing Director/CEO.
