‘Independent board members have failed’: Sebi chairman
Securities and Exchange Board of India (Sebi) chairman Ajay Tyagi on Tuesday said the market regulator has failed to ensure that independent directors do not act under the influence of company promoters, despite several attempts to make sure the rights of minority shareholders are protected.
“I must admit that notwithstanding various efforts, we are yet to get ideal solutions to issues such as ensuring the independence of independent directors, selecting the best-suited persons as independent directors and making their role more effective and meaningful,” said Tyagi at a corporate governance summit organized by the Confederation of Indian Industry.
“Yet another issue commonly raised is that howsoever we may strengthen the processes related to independent directors, those who are genuinely not independent will never be. It is true that human behaviour cannot be fully regulated by norms. However, it is our endeavour through improved processes and disclosures to bring in greater balance, transparency and quality in the selection of independent directors and functioning of the corporate boards,” Tyagi said.
There are about 6,800 listed firms and Sebi’s listing obligations and disclosure regulations (LODR) require them to adhere to basic corporate governance standards so that no stakeholder is treated inequitably.
Sebi’s primary aim to have independent directors in listed firms is to ensure that investments made by millions of small retail shareholders in these entities do no face unfair risks.
On March 1, Sebi issued a consultation paper proposing to make the process of appointment and resignation of independent directors transparent.
Sebi wants a company to secure dual approval, one from the board and the other from minority shareholders, both for appointments and resignations of independent directors. At present, an independent director is appointed if approved by a majority of shareholders, including the promoter and non-promoters.
Sebi has also proposed that if an independent director exits a board, the full resignation letter should be disclosed to the stock exchanges. It has also proposed that instead of profit-linked commissions, independent directors should be remunerated through long-duration stock options.
Towards the end of 2018, several independent directors of jailed businessman Rana Kapoor-promoted Yes Bank had quit the bank’s board through a series of resignations. However, the actual letters of resignations were not disclosed to the public by the bank, whose board was eventually taken over by a Reserve Bank of India-appointed administrator and subsequently replaced by a new board after State Bank of India picked up a majority stake in the bank to salvage it from becoming a complete failure.
Tyagi re-emphasized the need to separate the roles of chairperson and managing director in Indian firms. “The underlying idea for such a separation is not to weaken the position of promoter, but to improve corporate governance. The objective is to provide a better and more balanced governance structure by enabling more effective supervision of the management. Separation of the roles will reduce excessive concentration of authority in a single individual. Having the same person as chairman and managing director brings in a conflict of interest,” he said.