Deadline for independent directors near, but CII complains

CII has taken an initiative to prepare a panel of qualified persons to hold the position, and the members of various councils at the national, regional and city levels were asked to prepare a list of such people for helping the companies to identify them with ease, he said.

As per a SEBI directive, at least a third of the board of a listed company must consist of independent directors if the chairman is a non-executive director, and half otherwise. During the current financial year, 141 companies belonging to the A group of the Bombay Stock Exchange will have to enforce this code. Another 1,078 companies listed in the B1 group will have to enforce this code by next year.

Supporting the Sebi initiative, Infosys chief N R Narayana Murthy said “there is a need to evolve a well thought-out criteria like functional expertise for inducting independent directors on the board of the corporates in order to ensure full utilisation of their experiences.” The issue of inducting independent directors on the boards of companies was the subject of an intense discussion at the meeting.

“Independent directors should be part of all strategic decision making process of the corporates and the company should clearly specify what it expects of an independent director,” Murthy said, adding, “a good set of independent directors come from the conviction of the management that independent directors are people who give good advices.”

Independent director is defined in the Sebi code as "A director who, apart from receiving director’s remuneration, does not have any other material pecuniary relationship or transactions with the company, it promoters, its management or its subsidiaries which, in the judgment of the board may affect independence of judgment of the director."

“It takes four-six months to select a right candidate to be an independent director for any company. Given that there was only less than five months time, we are trying to provide a ready list of such people,” a CII official complained at the meet. “The main intention of the CII was to avoid repetition of Korean experience in India," he said. “Mostly relatives and close acquaintances of CEOs and promoters were taken as independent directors in response to an International Monetary Fund (IMF) stipulation.”

Highlighting the main characteristics of an independent director, Murthy said, he/she should either have functional expertise that can add value to the company or have experience in successfully running a customer-oriented organisation. Further, the director should have experience in creating brand equity, be clued in to global perspective, be respected for independence and competence and in general be able to help the company in making strategic decisions.

Unit Trust of India (UTI) chairman P S Subramanium said the independent directors should meet at least once in a year to judge the performance of the CEO and suggest the decision making process on balancing between short-term performance and long-term sustainability. "The spirit of independence should not only be included in the boards but also it should be exercised at all levels," he added.

“I hope the independent directors won’t be golfing partners,” said another businessmen.

Subramanyam clearly indicated that investment institutions wanted greater transparency from the corporate sector in matters of takeovers, whether they are acquirers or target companies. The UTI chief advocated a "glasshouse approach" to transparency by corporates, where board decisions in such cases should be clearly made known to shareholders.

Subramanyam made it clear that there would have to be complete transparency in decisions from both sides, and the acquiring company would also need to have jolly good reason to go for an acquisition and would need to explain the reason to its shareholders openly.