Norms on appointing Independent directors

Why in news?

Kotak Committee on corporate governance constituted by the SEBI, has recently proposed a fresh set of norms for appointing directors.

What is the trend in appointing chiefs of a company?

• In India, most companies are run by the dominant shareholder, also known as “promoter” who is either an industrialist or the government.
• Independent directors, who are supposed to represent ordinary shareholders, are chosen not by shareholders but largely by the management, i.e. the promoter.
• There’s no way that any independent director would be chosen without the approval of the promoter.
• In public sector enterprises, the appointment of independent directors is at least independent of the CEO because it’s the ministry concerned that appoints independent directors.

What are the highlight proposals of the committee?

• The committee on corporate governance, or “making boards more effective”, ranks right up there in executive training programmes.
• This committee asks for more directors and independent directors and dwells on the eligibility criteria for independent directors, and their induction.
• It lays down requirements for the minimum number of board meetings and attendance requirements.
• It specifies a minimum compensation for independent directors.

What are the unaddressed areas on independent directors?

• In India, there are independent directors who are beholden to the promoter for their place on the board.
• Theydon’t have considerable freedom to express themselves, as vast majority of private companies treat promoter and CEO in a same rank.
• So it would be quite a challenge for an independent director to question decisions of a board.

Source: Business Standard