Sie sind auf Seite 1von 11

Corporate Governance

Case 1: Wadia complains to Sebi about Tata group's independent directors

Nusli Wadia, the chairman of Wadia group of companies, has written to market regulator, the Securities
and Exchange Board of India (Sebi), claiming some of independent directors of Tata group companies
have a direct conflict of interest and should be removed from the boards.

The persons he has named are Tata Steel independent directors Jacobus Schraven and Andrew Robb,
and Mallika Srinivasan and Naseer Munjee, independent director of Tata Chemicals and Tata Motors,
respectively.

Till recently, Wadia was also an independent director on the boards of Tata Steel, Tata Motors and Tata
Chemical. However, after Cyrus Mistry was ousted as Tata Sons chairman on October 24, he put his
weight behind Mistry and was removed from the boards of these companies through extraordinary
general meetings.

In his January 6 letter to Sebi, Wadia said as the chairman of the nomination and remuneration
committees (NCRs) of these companies, he wrote to these directors individually telling them that they
cannot be appointed as independent directors as they were drawing remuneration from other Tata group
companies.

He said Schraven was a non-executive independent director since 17 May 2007 and also a non-executive
director of TSLs wholly owned subsidiary, Tata Steel Europe and Tata Steel Netherlands.

Besides receiving remuneration as an independent director from Tata Steel, he also receives a
remuneration of 99,000 from TSL Europe and another 45,000 from TSL Netherlands as chairman and
member of supervisory board.

Robb, Wadia said, receives a remuneration of Rs 2 crore from TSL Europe.

Robb is the chairman of the audit committee of TSL Europe as well as a member of audit committee of
TSL India. Had he been not classified as an independent director on the board of TSL, he would not have
qualified for appointment on the audit committees of both companies as independent director, Wadia
said.

An email sent to Tata Sons did not elicit any response.

Wadia said independent directors were allowed remuneration of only Rs 1 lakh and, if the company
makes money, commission to the extent of only one per cent of net profits, under the Companies Act.
Schraven and Robb received remuneration from TSL Europe and TSL Netherland over and above their
entitlements.

Corporate Governance Page 1


Wadia said the company secretary and chief financial officer of Tata Steel had earlier refused to share
requested information.

However, on repeated requests as the NRC chairman, the details were provided to him.

This information was not provided in the annual report of TSL, Wadia wrote.

On Srinivasan, Wadia said her husband, Venu Srinivasan was a director of Tata Sons and also a trustee of
Sir Dorabji Trust, a disclosed constituent of the promoter group, holding 28 per cent stake in Tata Sons.

By virtue of the definition of associate company under the Companies Act 2013, Tata Steel was an
associate company of Tata Sons. Dorabji Trust is a non-profit organisation that is direct beneficiary and
receives 25 per cent of its receipts in the form of dividend from Tata Sons. The Act provides clearly that
the receipts by a non-profit organisation could be from the company concerned of any of its
promoters. Mallika Srinivasan has direct conflict of interest with TSL, he said.

On Munjee, Wadia said he was appointed as non-executive independent director of Tata Chemicals in
September 2006 and is appointed as an independent director under the Companies Act 2013. Munjee was
also a non-executive independent director since 2008 on the Tata Motors board and was appointed as an
independent director till 2014.

Munjee is also a trustee of the Ratan Tata Trust, which is classified as a promoter of Tata Motors and
Tata Steel. The Ratan Tata trust holds 23.5 per cent stake in Tata Sons and the trust and Tata
Sons together hold 26.5 per cent in Tata Motors. Ratan Tata Trust is a direct and an indirect beneficiary of
all receipts from TCL and Tata Motors. Munjee has been appointed as the Chairman of the Audit
Committees of Tata Motors and Tata Chemicals and further by virtue of he being an independent director
on the board of TML. It has nominated him on the boards of JLR, UK and also appointed as member of
its audit committee. Sir Tata trust, constituent of the promoter group, and receives 25 per cent of its
receipts in the form of dividends from TCL and Tata Sons, Wadia said.

He asked Sebi to give necessary directions to the directors, adding that false declarations made by them
could entail legal retribution under the Indian laws.

Source : http://www.business-standard.com/article/companies/wadia-complains-to-sebi-about-tata-
group-s-independent-directors-117011801303_1.html

Case 2: Rise in number of independent directors joining Rs 1-cr-plus pay bracket

MUMBAI: The number of independent directors in India taking home upwards of Rs1crore in annual
salary is on the rise, as companies loosen purse strings to compensate top executives better in a milieu of
increased accountability.

According to market tracking firm PrimeDatabase, the number of executives in the Rs1-crore-plus club
increased to 64 in 2015-16, almost tripling from 22 in 2011-12. In 2014-15, there were 56 independent
directors in this category.

Corporate Governance Page 2


Last fiscal, there were 18 first-time crorepati independent directors, as per latest data from
PrimeDatabase.

This includes Kamalesh Chakrabarty at Indiabulls Housing Finance; Punita Sinha, who was on seven
boards including JSW Steel, Infosys, Hexaware Technologies; Ravi Venkatesan who was on board of
Infosys; Dileep Choksi, who was on six boards including ICICI Bank and Lupin; and RC Bhargava, who
was on three boards including Dabur, Grasim and Idea.

The average take home remuneration of independent directors increased 21% year-on-year in fiscal 2015-
16. Calibre of independent directors and time now required to discharge duties have increased
significantly. Companies are realising that to attract high-calibre independent directors they have to pay
appropriate compensation, explained Arun Duggal, chairman, chairman of credit rating agency ICRA
and an experienced independent director.

Navnit Singh, India chairman for Korn/Ferry International, a leading tional advisory firm, Given the
increased liabilities and strict governance on independent directors in the New Companies Act, companies
are saying they have to compensate them better.

Aman Som Mehta, OP Bhatt, Naresh Chandra, Adil Siraj Zainulbhai, Vijay Kelkar, Omkar Goswami,
Shailesh Haribhakti, Raghunath Anant Mashelkar, M Damodaran, and SK Bhargava were the 10 highest
earning crorepati independent directors in the grouping of 1,442 of 1,520 NSE-listed companies.

The New Companies Act, 2013, proposed to empower independent directors while increasing
accountability and transparency. It holds independent directors liable for acts or omissions or commission
by a company that occurred with their knowledge and attributable through board processes. This
effectively means greater liabilities, while having limited control over the board.

Under the Act, independent directors can be paid up to Rs1 lakh as sitting fee per board meeting or a
committee meeting. It is the comorganisamission where companies have the flexibility to pay more. As
per the rule, the sum total of all commission fee paid to all independent directors in a company can be up
to 1% of the companys profit.

There is an increase in both sitting fees and commission paid to independent directors, which explains
the difference. Also, liabilities now are much more, prompting companies to dole out higher
compensation, said Pranav Haldea, managing director of Prime Database Group. It is, of course, also a
factor of how many boards and the size of the companies whose boards they are on, he said.

According to Duggal, the New Companies Act has taken away the provision of stock options for
independent directors and the increase in commission fee is in line with what would be expected to
appoint an independent director of stature and calibre. The Act allows a person to be on boards of 10
companies, while capital markets regulator Sebi has limited this to seven listed companies (three if
serving as a whole-time director). So, effectively, a person can be independent director of seven listed
companies and three unlisted ones.

In 2015-16, Mehta who was on the board of five companies, including Godrej Consumer Products,

Corporate Governance Page 3


Wockhardt and Tata Consultancy ServicesBSE -0.20 % (TCS)was the highest paid with total earnings
of about Rs3.7 crore, according to PrimeDatabase research. Other top earning independent directors
included Bhatt (Rs2.91crore), who was on the boards of TCS, Tata Steel and Hindustan Unilever, and
Chandra (Rs2.72 crore), who was on the board of seven companies including Cairn India, Bajaj Auto and
Vedanta.

The top-12 executives in this list earned Rs2-4 crore each. In the top 10, some like Zainul saw about 27%
increase in remuneration from four board positions. Haribhakti, who was at No. 22 in 2014-15 with
Rs1.67 crore from nine board positions, rose to number seven last fiscal, earning Rs2.38 crore from seven
board positions. TCS paid Rs2.35 crore to Mehta, the highest compensation paid to an independent
director during the year.

However, despite the increase in compensation, independent directors in India take home less than their
counterparts in some developed nations. In countries like the US and UK, the aggregate salary of an
independent director on the boards of four-five companies can swell to a million dollars or more.

Compensation of independent directors in India has been much lower than their global counterparts. It is
more of a market correction happening now, said Sunit Mehra, managing partner, Hunt Partners,
executive search and board consulting firm. People are coming close to paying true market value for a
person of stature and the risks involved in the position.

Source : http://economictimes.indiatimes.com/news/company/corporate-trends/rise-in-number-of-
independent-directors-joining-rs-1-cr-plus-pay-bracket/articleshow/54661701.cms

Case 3: Are independent directors liable?

Dilution of the core principle of accountability will mean double standards, but punishing those who are
not directly responsible will deprive companies of valuable talent.

Rajeev Chandrasekhar, Member of Parliament & Chairman, Jupiter Capital

The move will prove counterproductive as it will encourage independent directors to remain unaware and
ignorant in their dealings with management

The year 1984 is marked by many unfortunate incidents in Indias contemporary history. The first
assassination of a prime minister of the country, the resulting anti-Sikh riots that claimed many innocent
lives and the Bhopal tragedy that took an estimated 15,000- 20,000 lives.

There is a common theme to these incidents as these significant acts are often described in
bureaucratise. In both cases where massive loss of life was involved, no person of stature has been held
responsible and punished, while thousands of our countrymen and women have suffered the loss of their
loved ones. It is against this background that we need to ensure that Bhopal isnt another case of sweeping
corporate crime under the carpet. The thousands of shattered families in Bhopal deserve to get justice and
closure even if the guilty are the rich and powerful.

Corporate Governance Page 4


In our country, public policy is significantly influenced by corporate lobbying and by the so-called icons
of industry with hardly any challenge being posed to them. So, its not surprising that efforts are under
way to soft peddle the concept of corporate negligence by trying to amend the Companies Bill, 1956. The
argument being advanced by some chambers of commerce and industry that prosecution of directors of a
company will somehow impact the availability of independent directors is laughable if it wasnt so
pathetic.

The whole idea of the institution of independent directors is simple. It is up to each company and
management to establish trust and credibility to attract independent directors who have the confidence to
be on its board. They are expected to be independent from the management and act as trustees of
shareholders, which means that they are obliged to be more aware and to question the company on
issues that are relevant. In other words, independent directors have obligations which they must fulfil. A
board of directors is not a cozy club, much as how some promoters would like it to be.

The lobbying by some organisations like the Confederation of Indian Industry (CII) to protect non-
executive directors from criminal liability and moves to amend laws to provide them immunity from the
laws of the land are not tenable. It suggests that independent directors do not have any obligation or
responsibility for the civil/criminal misconduct/negligence of company. This is an unacceptable
proposition. They cannot escape this obligation by claiming to be ignorant of what management was
doing. This is a universal law and should be so in India as well. The issue of the personal liability of the
directors can be addressed separately by seeking indemnification and protection from the
company/management/promoters. They can also seek directors insurance to protect themselves as
individuals.

But the core principle of accountability cannot and should not be diluted at the behest of a few worried
companies. This will prove counterproductive as it will, in a way, encourage independent directors to
remain unaware and ignorant in their dealings with the management. It also reeks of double standards
by allowing a privileged group to remain above the laws that govern the ordinary citizens of country.

I was expecting a spin to start in support of this proposition, so I wasnt surprised by the statement
by Deepak Parekh who is quoted as saying, I agree Bhopal is our worst tragedy. But we cant get
emotional about it. Just by putting a chairman and CEO in jail is not going to solve the problem! This is
an amazing statement and shows just how compromised and lopsided our system is. The hypothesis that
is being advanced by Parekh is that we should forget that there was someone culpable and responsible for
this negligence simply because he was a chairman or CEO of a powerful company. He is wrong. Why is
holding a chairman or CEO responsible for negligence any more special than holding an ordinary citizen
accountable? If anyone violates the law of the country and is found to be negligent, he ought to face the
consequences.

We cannot allow this double standard anymore. It might have worked for 26 years but not any more. This
is the only way to send a message to other lawbreakers. Break the law and you will held accountable.
Dilution of the current law will dilute the core principle of accountability and all arguments advanced
should be rejected for what they are a plea for double standards and dilution of accountability.

S Mahalingam, CFO & Executive Director, TCS

Fixing differential liability for independent directors will enable them to function as an effective oversight
body, thereby reducing accidents

Corporate Governance Page 5


There is increasing clamour today for meting out punishment to directors, including non-executive and
independent ones. While responsibility for any omission or commission needs to rest with the
perpetrators, who should society look to punish in a situation where the responsibility for a tragedy rests
with a corporation? In ascribing the fault to a non-executive chairman who is an independent director, are
we not punishing those who are not in direct line of responsibility? This attitude is already resulting in not
getting valuable talent into the board at a time when the country needs to have a large number of
companies, actively traded in the stock exchanges.

This debate brings us back to the basic question: What are the responsibilities of the board of directors
and, in particular, what is the role that can be played by independent directors? Non-executive directors
should contribute to and constructively challenge the development of company strategy. They must
scrutinise management performance; make sure that financial information is accurate and ensure that
robust risk management systems are in place. It is important for them to meet collectively once a year
without the chairman or executive directors.

The key to being a truly effective independent director is time management. A non-executive director
should be able to devote enough time to the affairs of the company. The importance of a non-executive
director has been underscored by Americas Securities Exchange Commission Chairman Arthur
Leavitt who said: I dont care how talented you are, you cant be a good watchdog if youre only on
patrol three times a year.

Independent directors these days are worried about the issue of potential liability as they are not involved
in the day-to-day operations of the company for which they bear responsibility. This fear of the unknown
also arises from the fact that they could be held liable for offences related to fraud, safety-related issues
and environmental issues. Independent directors are also concerned about the amount of time and money
that is lost due to such litigations and more so the risk to their integrity.

However, the excuse that they were ignorant about a fraud brewing in the company should not be reason
enough for letting independent directors go free. Indeed, we need to fix their liability as distinguished
from that of other directors and executive directors. This would naturally limit the liability of the
independent directors.

Various expert committees over the years have clearly delineated the roles and responsibilities of
independent or non-executive director. The Naresh Chandra Committee Report on Corporate Audit and
Governance in 2002 said that non-executive and independent directors should be freed from criminal and
civil liabilities and should also be indemnified against costs of litigation. The Narayana Murthy
Committee Report in 2003 also supported the notion of limited liability and further argued
that independent directors should periodically review legal compliance reports prepared by the company
as well as steps taken by the company to cure any taint.

Further, no criminal liability should be attached to independent directors unless it is proved that he/she
has personally committed a wilful crime. They should be held liable only if they were either in charge of
the matter or had knowledge of the offence and failed in their responsibility to ensure compliance.

This differentiation in liability can be achieved if independent directors ask the right questions at the right
time. Raising appropriate red flags at the opportune moment would help avoid occurrence of such
untoward situations to a great extent. Asking questions assumes utmost significance. One of the most
important tools that independent directors possess is the right to insist on a particular agenda and have an
in-depth discussion of such items at board meetings. Independent directors should also make sure that the

Corporate Governance Page 6


agenda put before them is informative and, at the same time, provides the big picture without burdening
them with too many details.

If independent directors are able to function as an effective oversight body and monitor the performance
of the management, the occurrence of mishaps and crimes would reduce. In such a scenario, independent
directors should be seen as part of the solution, and not that of the problem.

For example, when a mishap occurs, independent directors can prove that steps were taken to make sure
that a framework was in place and that the reasons for the occurrence of such an event was unsuccessful
implementation of such a framework.

Source : http://www.business-standard.com/article/opinion/are-independent-directors-liable-
110063000019_1.html

Case Study 4: The Importance of Being Independent

On a wintry evening in December 2005, Prithvi Haldea received a phone call from an industrialist friend.
The Delhi-based friend sounded worried. He sought help from Haldea, Founder-Chairman of primary
market tracker PRIME Database, to find an independent director for his Rs 700-crore company.

The matter was urgent because the Securities and Exchange Board of India's (SEBI) January 1, 2006,
deadline for listed companies to appoint non-executive directors was fast approaching. The friend called
again a day later to inform Haldea he was appointing Ram Lal, his barber, to the board. Haldea was
dumbfounded. He asked his friend how he would justify the appointment to shareholders. SEBI, the
industrialist said, hadn't prescribed any qualifications for independent directors. "We are describing him
as an expert in personality development," he told Haldea. Neither the company's shareholders nor SEBI
raised any questions over the barber's appointment.

Naming a barber to the board may have been an extreme case, but the incident highlights how lightly
some Indian companies take corporate governance issues. The situation hasn't changed much nearly eight
years after SEBI modified a key clause of the listing agreement that companies sign with stock
exchanges. The modified Clause 49 required, among other conditions, listed companies to constitute
boards with at least 50 per cent independent directors. The aim was to improve governance and financial
disclosure standards at companies.

Has the regulator succeeded? And are independent directors really independent?

In theory, the role of independent directors is to bring objectivity to the board, protect the interests of
minority shareholders, and improve risk management. In reality, this rarely happens in India. Independent
directors have proved ineffective in improving governance and preventing corporate fraud. The reasons
vary. Some non-executive directors stay on a board for decades while some others sit on multiple boards,
hampering their ability to effectively scrutinize management decisions. A lack of will among company
founders or dominant shareholders to improve governance has also affected independent directors'
functioning. Weak regulations haven't helped either.

Corporate Governance Page 7


A study released on October 20 by proxy advisory firm InGovern pointed out that, as of March, at least
10 independent directors had been on a board for 20 years or more. These included industrialists Keshub
Mahindra and Nusli Wadia as well as renowned lawyer R.A. Shah. Mahindra, Chairman Emeritus at
automaker Mahindra & Mahindra, was on the board of mortgage lender Housing Development Finance
Corporation for 36 years - he stepped down on October 21. Wadia, Chairman of textile company Bombay
Dyeing, has been on the board of Tata Steel for 34 years while Shah has been an independent director
with Colgate-Palmolive India for 30 years. "Serving a board for a long duration impairs an independent
director's ability to challenge management decisions," says Amit
Tandon, Co-founder of proxy advisory firm Institutional Investor Advisory Services.

Clause 49 suggests a maximum tenure of nine years for independent directors. But it's not mandatory for
companies to stick to this limit. The Companies Act 2013 changes that. The law caps the tenure at two
consecutive terms of five years each. Directors can be reappointed after a three-year gap. Dilip Thakkar, a
chartered accountant by profession who sits on around two dozen boards, argues that tenure does not
interfere with a director's freedom to challenge management and that the new law will create a shortage of
non-executive directors. "The government is trying to curb demand [for independent directors] without
creating supply," he says.

HARDLY INDEPENDENT

A recent incident that raises doubts about the role of independent directors involves Subodh Kumar
Agrawal, President of the Institute of Chartered Accountants of India, the country's accounting regulator.
Agrawal has been an independent director at Gujarat NRE Coke for 12 years and heads the board's audit
committee. He found himself in hot water when proxy advisory firm Stakeholders Empowerment
Services (SES) raised questions about the company's audit process.

SES says the company's auditor - N.C. Banerjee & Co. - certified the consolidated accounts for 2012/13
by auditing only nine per cent of its assets and over 33 per cent of revenue. The remaining assets and
revenue belong to the company's Australian units, whose auditor - Grant Thornton - had asked for more
time and audit evidences to certify the accounts. The audit panel passed the accounts on May 30 without
questioning the process the Indian auditor followed. Agrawal was not available for comment despite
repeated attempts.

Film distributor Eros International Media is another company with eminent people - Naresh Chandra,
Shankar Acharya and Dhirendra Swarup - as independent directors. Chandra is a former cabinet secretary
and India's ambassador to the US. Acharya is a former chief economic adviser to the finance ministry.
Swarup is a former chairman of the Pension Fund Regulatory and Development Authority. Still, the
company has defaulted on its tax payments. As of August, Eros owed Rs 43.2 crore to the government in
undisputed taxes, according to SES. The payments have been due for a long time - value-added tax from
2006/07 to 2011/12 and service tax from 2000/01 to 2010/11. Email queries to the company did not elicit
any response. Chandra refused to comment specifically on Eros, but said that payment delays "happen in
some companies".

Corporate Governance Page 8


Suresh N. Talwar, who sits on the boards of top companies such as Larsen & Toubro and Biocon, says
independent directors have their limitations. "We meet four times a year for a couple of hours. In board
meetings, everything that's presented to us looks fine. We never come to know of any problems."

Nick Paulson-Ellis, CEO of brokerage Espirito Santo Securities India, says controlling shareholders -
whether in a multinational corporation, a state-run firm or a private company - do not like to be
challenged by outsiders. "It takes a lot to challenge executive decisions in such a scenario," he says.

Chennai-based Sun TV Network is a case in point. As of June, its promoters own 75 per cent of the media
company. Even though Sun TV's remuneration committee is headed by independent director J.
Ravindran, its wages are heavily skewed in favour of its promoter directors. In 2012/13, the company's
1,916 employees together earned Rs 85.7 crore, or Rs 4.5 lakh on average. In comparison, the promoter
directors - Kalanithi Maran and Kavery Kalanithi - each got Rs 56.2 crore as salary and perks. This is a
whopping 1,250 times the average staff salary. "It clearly shows the independent directors have failed to
implement fair remuneration policies," says J.N. Gupta, Managing Director at SES. Ravindran didn't
respond to a request for comment.

CORPORATE MISGOVERNANCE

Corporate governance came into the limelight in India after an accounting scandal at software exporter
Satyam Computer in 2008. The scandal highlighted the need for a strong board with vigilant non-
executive directors. Since then incidences of fraud and failures at companies such as Kingfisher Airlines,
Ranbaxy Laboratories and S. Kumars Nationwide have raised concerns about the functioning of
independent directors.

Kingfisher had five independent directors, including former SEBI chief G.N. Bajpai, who quit between
September 2011 and March 2012. Bajpai was appointed to the board of group company United Spirits a
few days after he left the Kingfisher board. The airline was grounded in October because of massive debts
and failing to pay salaries and taxes for many months. The same month, HMX Acquisition Corp, the US
unit of textile company S. Kumars Nationwide, filed for bankruptcy. Its board included former SEBI chief
M. Damodaran as an independent director. Damodaran and two other non-executive directors, Suresh N.
Talwar and D.D. Avari, resigned soon after the bankruptcy filing.

In May, Ranbaxy agreed to pay a record $500 million fine to settle allegations that drugs from two of its
factories did not meet regulatory standards and that it had submitted false data to US authorities between
2003 and 2010. The independent directors on Ranbaxy's board when the alleged malpractices took place
were noted investment banker Nimesh N. Kampani, former Procter & Gamble India CEO Gurcharan Das
and industrialist Vivek Bharat Ram. Rajesh Shah, an independent director with Ranbaxy for about five
years, says there is nothing wrong with the board's functioning. "The board of Ranbaxy is doing what is
expected from it," he says.

Chandra, the former cabinet secretary, says the debate on independent directors is "over-influenced" by
corporate fraud. Chandra, who sits on the boards of 10 listed companies, says Satyam's auditor was
accounting giant PricewaterhouseCoopers. Also, the company, which was listed in New York at the time

Corporate Governance Page 9


of the scandal, was governed by the Sarbanes-Oxley Act, a US law aimed at protecting investors and
preventing fraud. "What better can you bring?" asks Chandra. "If big business houses commit fraud,
independent directors cannot do anything."

Thakkar says independent directors resign because they are scared they will be held accountable for
things beyond their control. This fear stems from the fact that the listing agreement does not mention
anything about the liability of independent directors in case of corporate fraud. The Companies Act,
however, specifies that independent directors will be liable only for their own actions and not for all
executive decisions. "It's a right step that will take away fear from their minds," says Richard Rekhy,
CEO of consulting and accounting firm KPMG India.

OVERWORKED, OVERPAID

An important issue that worries corporate governance watchdogs is what they call "directorship
overload". Clause 49 does not limit the number of boards a person can join as an independent director.
The Companies Act 2013 has tried to address the issue. It says a person can join no more than 10 listed
companies and 20 overall as a non-executive director.

Sridar Iyengar, an independent director at Mahindra Holidays, Dr Reddy's Laboratories and Rediff.com,
says even 10 boards are too many. "The agendas are so voluminous these days that it is important to come
prepared for meetings," he says.

Another contentious issue is remuneration. Some experts say companies should adequately compensate
non-executive board members while others argue that high remuneration harms their objectivity. "We are
paid Rs 20,000 per meeting. I can make three times of that amount in an hour," says Thakkar. The
Companies Act has raised the cap on the sitting fee to Rs 1 lakh per meeting from Rs 20,000.

The new law has, however, done away with stock options, which are allowed under the listing agreement.
Omkar Goswami, founder of consultancy CERG Advisory, says this could prevent start-ups and
companies that do not make a profit in initial years from attracting good independent directors.
"Companies like Google and Netscape gave stock options to their directors in the formative years," adds
Goswami, who is an independent director with eight listed companies in Business Today's ranking of
1,000 largest companies in India in terms of market capitalisation and makes Rs 2.68 crore a year from
these companies alone.

Vishesh Chandiok, National Managing Partner at Grant Thornton India, says compensation needs to be
enough to attract young professionals. According to a PRIME Database analysis of 1,465 companies
listed on the National Stock Exchange and 197 unlisted companies, more than 91 per cent of independent
directors are above 45 years. "People choose to become independent directors very late in their careers
and that's why it's difficult to find young people joining company boards," says Paulson-Ellis of Espirito
Santo. "The entire ecosystem has to change for independent directors."

Corporate Governance Page 10


A NEW ECOSYSTEM

So, how will the ecosystem change?

There are so many overleveraged companies in the country but no independent director expresses
concern: Vishesh Chandiok, National Managing Partner, Grant Thornton

The Companies Act requires companies to form nomination committees that will choose independent
directors from a database the government will prepare. But doubts remain about its efficacy. "There are
fears the database is nothing but a trick to push the government's candidates in the corporate sector," says
former bureaucrat Chandra. "This is worrying companies."

PRIME Database's Haldea says even a nomination committee cannot ensure a fair selection of candidates.
"No promoter will induct a stranger on the board," he says. Companies' founders or dominant
shareholders will continue to influence the selection process because the law prohibits appointing only a
certain set of people who are related to a company or its founders, he adds.

Unlisted companies take corporate governance even less seriously. According to PRIME Database,
between April 2006 and September 2012, various companies appointed 92 independent directors in the
month prior to filing their public offer documents with SEBI.

KPMG's Rekhi says independent directors should be told their key responsibilities at the time of
appointment, a practice followed in Australia, Singapore and the UK.

Experts say SEBI should also punish companies that flout corporate governance norms. Clause 49
empowers the regulator to suspend share trading and even delist the defaulters. But it hasn't done so thus
far. For instance, when Kingfisher Airlines missed its 180-day deadline last year to appoint new
independent directors, the regulator did not take any action. A SEBI official, who does not wish to be
named, says the regulator has been taking steps to improve corporate governance standards. SEBI is also
examining the recommendations of a panel tasked with suggesting changes to Clause 49 so that it
conforms to the new Companies Act, he says.

Tighter regulations, however, will matter little if independent directors don't assert themselves. "There are
so many overleveraged companies in the country but no independent director expresses concern," says
Grant Thornton's Chandiok. "They need to continuously question management decisions."

With research inputs from Jyotindra Dubey

Source : http://www.businesstoday.in/magazine/features/indian-corporate-houses-independent-
directors/story/200969.html

Corporate Governance Page 11

Das könnte Ihnen auch gefallen