Every fifth firm yet to get independents on board

Almost one in every five listed companies has not yet complied with the Clause 49 listing norm, eight months after its coming into effect.

Clause 49 stipulates a minimum of 50 per cent participation by independent directors on boards of companies. In companies with non-executive chairmen, independent directors have to make up at least one-third of the board.

A Bombay Stock Exchange note today said that out of the 2,697 companies that were required to comply with Clause 49, 18 per cent had either "not reported or have reported non-compliance for the quarter ended June 2006." Even though there are 4,175 listed entities, the number of actively traded stocks is less than 3,000.

The Clause 49 norm came into effect on January 1, 2006, after much resistance from corporates. The Securities and Exchange Board of India (Sebi) was the key mover in ensuring this clause was included in the listing agreement that companies signed with stock exchanges to improve corporate governance standards.

According to the BSE, all companies listed on the exchange need not comply with the Clause 49 requirements. "About 1,478 listed entities are either suspended or not actively traded on the bourse, and hence we have not taken them into consideration," a BSE official said. He, however, refused to name the companies that had failed to report Clause 49 certification.

According to procedure, companies need to file a note along with their quarterly earnings saying they are Clause 49-compliant. Some other provisions in the clause relate to the number of board meetings.

Under this, firms are required to hold at least four board meetings annually, with not more than four months between two meetings.