CII against 6-yr cap for independent directors | business | Hindustan Times
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CII against 6-yr cap for independent directors

The government’s proposal to impose a six-year limit on the tenure of an independent director on the Board of company has not gone down well with India Inc which believes such decisions should be best left to the individual boards and should not be etched in law. CII's wisdom

business Updated: Sep 19, 2010 23:22 IST
HT Correspondent

The government’s proposal to impose a six-year limit on the tenure of an independent director on the Board of company has not gone down well with India Inc which believes such decisions should be best left to the individual boards and should not be etched in law.

“Independence is a state of the mind,” industry chamber Confederation of Indian Industry (CII) said in a note. “Tenure of independent directors should be left to the Board and shareholders to decide. Inclusion of this provision in the Companies Bill must be reconsidered.” The government has proposed to set a six-year ceiling for any person to serve as independent director on a company’s board.

The corporate affair ministry, which is piloting the Companies Bill, has told the Parliamentary Standing Committee that it plans to introduce a new sub-clause in proposed legislation.

“No independent director shall have a tenure exceeding, in the aggregate, a period of six consecutive years on the Board of a company,” the proposed sub-clause 132(7) said.

It also proposed a cooling off period — elapsing of a period of three years — before the same individual is inducted in the same company in any capacity.

Two tenures is the maximum that an independent director can serve in any company in the manner provided in this clause. These were not part of the original Bill that was introduced in August last year.

The standing committee, headed by former finance minister and BJP leader Yashwant Sinha, submitted its report to Parliament last month.

Stock market regulator Securities Exchange Board of India’s listing guidelines recommends a term of nine years for independent directors.

“To be an effective board member in a company, one comes in with little knowledge of the industry or the company, and it takes a year or two to understand the dynamics of the company, functions, issues etc and just six years seems a little less than the ideal sort of the tenure,” CII said.