New greater role for independent directors – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-editorial/new-greater-role-for-independent-directors/articleshow/84121698.cmsSynopsis

It is welcome that Sebi has thoroughly revised its stipulations for independent directors (ID) so as to boost oversight and corporate governance across the board.

It is welcome that Sebi has thoroughly revised its stipulations for independent directors (ID) so as to boost oversight and corporate governance across the board. It has revamped guidelines for the appointment and removal of IDs, strengthened their positions in remuneration and audit committees, and, indeed, mandated a dominant role for them in such panels.

The Companies Act, 2013, has a vanguard role for IDs of listed corporates and prescribed public companies, and the move now is to make the independence of IDs a rightful tool for improved transparency in corporate governance standards in India Inc. The appointment/reappointment of IDs will take place via a special resolution, which needs to be approved by 75% of shareholders. Also, the oversight role of IDs in nomination and remuneration committees of company boards has been enhanced. In the composition of such panels, at least two-thirds of the members are required to be IDs. Ditto for the board committees that review and monitor financial statements and disclosures, scrutinise inter-corporate loans and investments, and okay related-party transactions. In all such committees, at least two-thirds of members need to be IDs.

The policy objective, of course, is to duly step up oversight of management and promoter-group operations. A cooling off period is also provided, both for IDs to be made whole-time directors and for senior management personnel to be appointed IDs. And, better oversight would call for revised compensation, to attract requisite talent. The proposal to grant IDs stock options is welcome, with longish vesting periods. Independence of directors depends, ultimately, on shareholder vigilance and informed participation in annual general meetings.

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