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New SEBI norms: 97 persons would have to resign from 283 independent directorships
New Delhi, February 25, 2014
As many as 97 persons would have to resign from 283 independent directorship positions in NSE-listed companies by October 1 following the new corporate governance norms announced by the Securities and Exchange Board of India (SEBI) with reference to independent directors, according to indianboards.com.
Besides mandating a woman director on each board, SEBI has stipulated that a person can serve as an independent director on the boards of a maximum number of seven listed companies and a maximum of three listed companies in case the person is serving as a whole-time director in a listed company.
"This is a welcome move as independent directors would now be able to spend more time on a company," Mr Pranav Haldea, Managing Director, Prime Database, which runs indianboards.com, a joint initiative of Prime Database and NSE, said.
According to indianboards.com, the maximum number of directorships is held by a person who has 14 such positions, while four have 13 each, one has 12, three have 11 each, and seven pesons hold ten directorships each.
A press release from indianboards.com said that, more worrying was the present state of compliance with Clause 49 of the Listing Agreement regarding composition of the board.
According to Mr. Haldea “as many as 17 per cent of the NSE-listed companies (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 (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 two successive terms of five years each, this is on a prospective basis, which means that this provision would take effect only after ten years.
"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," Mr Haldea said.
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 21 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 Mr. Klaus Carl Uebel, who has been on the board of Hercules Hoists Ltd. for 51 years.
According to Mr. Haldea, “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."