Limit independent directors’ tenure

Limit independent directors’ tenure
The Times of India, December 21, 2009, Page 24

Pankaj Doval, TNN NEW DELHI:

NEW DELHI: Seeking a more effective role by independent directors in ensuring corporate governance, the Institute of Company Secretaries of India (ICSI) has recommended a limited six-year term for them and suggested that nominees of financial institutions should not be treated as independent since they had their own interests to protect.

ICSI, that submitted its recommendations to the ministry of corporate affairs and market regulator Sebi, said the Satyam fraud necessitated a re-look at the regulatory provisions that currently exist.

"The nominee directors have a clear mandate to safeguard the constituency they represent i.e. the financial institution they represent. Hence to term them as independent is an anomaly," ICSI VP Vinayak S Khanvalkar said. Sebi should also make similar changes to Clause49 that governs corporate governance on listed companies, he added.

The statutory body said there should be a fixed tenure for independent directors to avoid any intimacy between them and the management. "Boards need to be regularly refreshed with new blood," it said. Currently, there is no limit prescribed on the tenure of an independent director, though Clause 49 recommends a period of nine years.

ICSI also recommended amendments to Clause49. "It needs to be suitably amended by specifying positive attributes for independent directors such as integrity, experience and expertise, managerial qualities and ability to understand financial statements, among other things," Khanvalkar said.

As recommended by industry chamber CII, ICSI also sought demarcation of the roles of the chairman of the board and that of the MD/CEO. It said this should be done to promote balance of power. Other recommendations of the ICSI included an annual evaluation of the performance of the board, various committees and individual directors.