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Worried independent directors no longer keen to hold board seats

This unabated exodus reflects a trust deficit in corporate India, said the chairman of a leading conglomerate.

Updated: Nov 20, 2019, 09.10 PM IST
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Half the directors quit when their terms ended, while the remainder left, citing other reasons, including personal health issues, conflicts of interest or other pre-occupations.
MUMBAI: The exit of independent directors from India Inc. boards has gained momentum, with the number more than doubling in the first six months of this financial year.

An estimated 291 independent members of boards of companies in the Nifty 500 resigned in the six months ended September compared with 126 a year earlier, according to nseinfobase.com, a joint initiative of the National Stock Exchange of India and PRIME Database that provides corporate data.

Half the directors quit when their terms ended, while the remainder left, citing other reasons, including personal health issues, conflicts of interest or other pre-occupations.

Former executives, ex-bureaucrats and others are reluctant to take up jobs as independent directors, reflecting a trust deficit in corporate India, said the chairman of a leading conglomerate.

With independent directors increasingly being held accountable for the actions of promoters and managements, former CEOs and directors told ET on condition of anonymity that they are refusing offers to join boards, citing concerns over their reputation and fears about legal liability.

Because of the fiduciary responsibilities, it’s onerous now on independent directors, said Venu Srinivasan, chairman of TVS Motor. They join only if they are 100% sure because there is a lot of risk these days, he said.

In large corporate groups, there are many board members who are retiring – here, the boards need to change. What is worrisome is when independent directors resign before their terms ends, Srinivasan said.

“Independent directors are unsure of their role and liabilities,” said RC Bhargava, chairman of Maruti Suzuki. If something goes wrong in the company, then the liability and responsibility is very huge, he said.

Generally, one-third of a board’s members should be independent directors.

Of the independent directors who resigned in the first half of the year, 146 quit after their terms expired, while 36 expressed no interest in being re-appointed or re-elected. There were 26 independent directors who resigned due to other pre-occupations.

‘Maintaining Independence a Challenge for Directors’

Another 17 left because they did not meet Sebi or Companies Act norms, while 40 others stepped down, citing conflicts of interest, personal or health reasons or no reason, old age and joining other boards. Six independent directors left after management changes.

According to Pranav Haldea, managing director of PRIME Database Group, there can be no truly independent directors, especially in companies with dominant promoters or shareholders.

“In my view, the institution of independent directors needs to be re-examined,” he said.

Haldea said independent directors who join a board have a certain comfort level with their promoters.

In Indian family businesses, majority ownership is with the promoter group and maintaining the independence of directors in such entities can be very challenging.

Independent directors should have the power to question the promoter group even as they serve the interests of minority shareholders in the boardrooms. The regulatory body, Sebi, needs to make sure that independent directors are more than passive participants at board meetings.

Directors can be said to be truly independent only if they are on the boards of companies where there are no controlling shareholders, said Haldea.

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