97 persons need to resign from 283 independent director posts

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Following a Securities and Exchange Board of India (Sebi) rule that one person cannot be on board of companies as independent director for more than seven companies (three in case the person is serving as a whole time director in a listed company), 97 persons would have to resign from 283 independent directorship positions before October.

The person with the maximum number of directorships in listed companies is Pradip Kumar Khaitan with 14 directorships.

“I’m on board of 8 companies right now, I’ll shed one directorship much before the October deadline,” said Shailesh Haribakti,, chairman, D H Consultants. “I’ll vacate from board of one company where it will cause the least distress,” he said, without disclosing from which company he’ll vacate. "I've shortlisted two companies, finally I'll vacate from one company," Haribakti said.

Pranav Haldea, managing director, Prime Database, which runs indianboards.com, a joint initiative of Prime Database and NSE, said 97 persons would have to resign from 283 independent directorship positions in NSE-listed companies by 1st October 2014. “This is a welcome move as independent directors would now be able to spend more time on a company,” he said.

More worrying, however, is even the present state of compliance with Clause 49 of the Listing Agreement regarding composition of board. As many as 17 per cent of the NSE-listed companies or 247 companies are presently non-compliant. With Sebi’s new norms of not treating nominee directors as independent, the non-compliance will go up to 22 per cent or 319 companies. Presently, nominee directors are being considered independent in as many as 382 cases in 227 companies. In 104 of these companies, conversion from independent to non-independent shall make the company non-compliant with Clause 49.

Regarding tenure, while the new Companies Act has mandated that an Independent Director cannot serve on the board of a company for more than 2 successive terms of 5 years each, this is on a prospective basis, which means that this provision would take effect only after ten years. However, according to Haldea “what is welcome is that Sebi has at least prescribed that if a person has already served as an independent director for 5 years or more in a listed company (as on 1st October 2014), he shall be eligible for appointment for only one more term of 5 years”.

“Whatever the regulator says we’ll abide. There is no shortage of talent for independent directors,” said Haribakti, adding that companies should induct new persons and give them proper training so that they’ll learn the ropes.

According to indianboards.com, 1287 of a total of 6050 independent directorship positions (21 per cent) in as many as 660 of the 1456 companies listed on NSE have already crossed tenure of 10 years as on 21st February 2014. Significantly, as high as 48 per cent of all independent directorship positions have crossed 5 years. The longest serving Independent Director on the board of a company is Klaus Carl Uebel having been on the board of Hercules Hoists Ltd. for 51 years.

While a fixed term for independent directors is favourable for renewing boards, it would have served a better purpose in case both the Companies Act and Sebi would have made this provision applicable immediately, with, of course, a compliance leeway of one year. “Effectively, no new independent director faces are likely to be seen at least for the next 5 years as a result of this provision,” Haldea said.

rajeshabraham@mydigitalfc.com

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