Cap on Independent Directorship – Is this the Solution?
Posted on: August 24, 2010
It is heartening to know from the recent news (To read the full news article in the Economic Times dated 24th August 2010 Click Here : http://economictimes.indiatimes.com/markets/indices–regulation/SEBI-proposal-Independent-directors-face-board-cap/articleshow/6424040.cms ) that, SEBI is considering a proposal to limit the number of company boards that an independent director can sit on. The proposal aims to ensure that independent directors get enough time to analyze the agenda of the board meetings and make meaningful contributions during board meetings. In order to give enough attention to all business details, independent directors do need a considerable amount of time.
On going through some of the Director’s report on the Corporate Governance in Annual Reports of various Companies, like Biocon, L&T,etc., it is really shocking to see that some of the non- executive independent directors in these companies holds the post of directorship – Chairmanship / Alternate Non-executive of around ~50 companies, including, listed, unlisted and foreign companies.
Recently issued Voluntary guidelines by the Ministry of Corporate Affairs say that an independent director should not serve on the boards of more than seven listed companies. However, SEBI should consider including unlisted, holding, foreign and other companies as well in this numbers so as to increase effective engagement of IDs on the Boards.
It would be unbelievable that such director could judiciously provide time to even read the board meeting agenda papers, what to talk about the active role in discharging effectively his or her foremost duties towards the minority shareholders like us.
Assuming, with no unexpected crises, active board service, including preparation, takes up to on a conservative estimates of two and half times the number of hours spent at a meeting. So if, ideally a board and its committees meet six times a year for an average length of six hours, board business occupies 10 to 11.25 days of an individual director’s in a year per company. Now, one can easily calculate how many days will be required to be spent by an individual director, who is on the board of around fifty companies.
It may not be out of place to mention here that in each and every exceptional case of such type, the regulator need not be blamed, it is therefore, essential that the director’s appointment committee need to thoroughly evaluate all these factors before putting up the proposal for appointment finally by the shareholders. Shareholders, should also help themselves by ensuring that they question their directors at the AGM or in between, on the nature of behaviors in the boardroom and otherwise.
Ethical and tough directors will stand up for what is right. Unethical or weak directors will cave in to pressure and may do the wrong thing or simply turn a blind eye whilst others do the wrong things. The independent director must be sufficiently strong minded to withstand pressure, either overt or covert, to conform to the wishes of others. These are the ones, who are truthful, would stand up and face the corporate world; they are really not “qualified” to take up these roles.
It is impossible for regulators to regulate so that only ethical and strong people get onto boards. It is therefore, pertinent that the ethical side of directorship needs to be recognized and managed far more than it currently is. It is observed that things are improving slowly, but there is still much to do to get the entire deadwood cut out of the boardrooms.
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