Companies may get new rules on independent directors

2021-03-01 22:30:00

MUMBAI: Sebi is proposing to make the process of appointment and resignation of independent directors more transparent. The markets regulator plans to make it mandatory that minority shareholders should separately approve such appointments.
Additionally, in case of exits, the entire letter of resignation by those directors should be made public. Sebi is also proposing that instead of profit-linked commissions, independent directors should be remunerated through long-duration stock options.
On Monday, Sebi published a consultation paper on the issue and invited comments from the public by April 1. The paper noted that an independent director should be appointed and also removed through a process of dual approvals where a majority of all shareholders should agree. Then, the ‘majority of minority’ shareholders should also approve the same.
Currently, an independent director is appointed if a majority of shareholders, which include the promoter and non-promoter shareholders, give their approval. Under the proposed structure, minority shareholders should separately also approve such an appointment. The same process should be followed in case of removal of an independent director, Sebi said.
The consultation paper also proposes that in case an independent director resigns, the full text of the letter of resignation should be disclosed to the stock exchanges. At present, although companies are bound to disclose the resignation of an independent director, revealing the full text of the letter is not mandatory.
The consultation paper further proposes that if a company wants to appoint an independent director, it should take prior approval of shareholders for the same or within three months of such an appointment. Currently, companies could make such an appointment and wait till the next general meeting to get shareholders’ approval.
According to J Sagar Associates partner Arka Mookerjee, some of these suggestions may increase the compliance burden on companies. But, Mookerjee added, Sebi’s move to increase the relative involvement of the independent director in a listed entity will ultimately help broad-base corporate governance norms in Indian entities.
“Read together with the qualification requirements for independent directors brought in by Sebi previously, these moves have the capacity to increase the independent oversight of Indian listed entities,” Mookerjee said.

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