6 companies: Govt to impose limit for independent directors | business | Hindustan Times
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6 companies: Govt to impose limit for independent directors

The government could soon clip the wings of independent directors. The ministry of corporate affairs is looking at limiting the number of company boards on which an independent director could be appointed to six from the present 15.

business Updated: Nov 26, 2009 21:35 IST
Mahua Venkatesh

The government could soon clip the wings of independent directors. The ministry of corporate affairs is looking at limiting the number of company boards on which an independent director could be appointed to six from the present 15.

This is to ensure that independent directors are able to devote more time to each company on whose board he is appointed.

“The issue is being currently looked into, it could be six though it is not sacrosanct and could vary but it would be around that,” a senior official at the ministry said.

Though independent directors are not involved in the day-to-day activities of companies and their role is to ensure fair play and transparency, the Satyam debacle revealed that on the ground they are not “truly independent.” In the Satyam case, disgraced founder chairman B Ramalinga Raju admitted that the records of the firms had been doctored for several years — which should have been detected by an independent director.

Under Clause 49 of the Listing Agreement, a listed firm must have a board with at least 50 per cent independent directors, or non-executive directors in case the chairman is an executive.

In case the chairman is non-executive, the rules specify that at least one-third of the board should comprise independent directors.

Corporate affairs minister Salman Khurshid has told Hindustan Times that the government would provide protection to independent directors and they would be held responsible only if there was discrepancy within their ambit. “Outside that they would not be responsible and would not be held accountable,” Khurshid said.

He did add that there was a need to restrict the number of company boards on which a single independent director could preside.

Since the Satyam episode in January, over 400 independent directors from various companies have resigned.

The Companies Bill, which has been referred to the Standing Committee, would also clearly outline protection clauses for independent directors. The bill is set to remove all ambiguities pertaining to the roles and responsibilities of independent directors, while spelling out what is expected of them.

Independent directors would not be held responsible for any discrepancy that is detected outside this clear ambit.