More board room for shareholder scrutiny – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-editorial/more-board-room-for-shareholder-scrutiny/articleshow/90036888.cms

Synopsis

​​Separately, the Securities and Exchange Board of India (Sebi) has tightened rules to improve governance by weakening the influence on independent directors of promoters and managements. From January 2022, they are to be appointed or dismissed by a special resolution of shareholders requiring a 75% vote in favour. Earlier, this could be accomplished by an ordinary resolution, which requires a 50% vote.

Corporate boardrooms are filling up with independent directors, with 10% more joining last year than in 2020. Vacancies and resignations are down by a quarter after GoI clarified that independent directors could avoid prosecution for corporate fraud if they established that they were unaware of it.

Separately, the Securities and Exchange Board of India (Sebi) has tightened rules to improve governance by weakening the influence on independent directors of promoters and managements. From January 2022, they are to be appointed or dismissed by a special resolution of shareholders requiring a 75% vote in favour. Earlier, this could be accomplished by an ordinary resolution, which requires a 50% vote.

Minority shareholders have gained a say in the appointment of independent directors, whose job it is to safeguard them from conflict of interest. The nomination and remuneration committee, tasked with choosing candidates for appointment as independent directors, has to explain the reasons for their choice. The committee itself must be made up of a two-thirds majority of independent directors, up from a simple majority earlier.

The audit committee must be similarly composed and the independent directors on this committee are empowered to clear related-party transactions. Alongside a bigger voice for independent directors, Sebi is also open to the idea of giving companies greater flexibility in fixing their fees, including as sweat equity, within overall limits prescribed by the Companies Act.

By improving internal controls, the new operating environment offers independent directors a greater role in shareholder scrutiny. Attracting talent through enhanced remuneration should also improve governance. The majority of independent directors polled in a recent survey are less concerned now about corporate fraud and see their role in minimising the risk. They are more worried about transparency and compliance. They also concede their need to be better trained for their job. All these are welcome developments for companies and markets.

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