Board level hiring for independent and non-executive directors has doubled over the past two years and is set to see a 40 per cent jump over the next year.
“There has been a 30-40 per cent upsurge in demand for non-executive directors in most companies. The trend is a result of the demand for added expertise that companies need due to product and services expansion,” said Jyorden Tsering Misra, managing director of Spearhead InterSearch, an executive search consultancy.
A case in point is India’s third largest information technology (IT) service provider, Wipro. It recently appointed M K Sharma, former vice-chairman, Hindustan Unilever, to its board as a non-executive director. The appointment took the number of such directors on the board to nine of a total strength of 12.
“The idea is, with ever-expanding verticals, the board should have representation across sectors. This ensures quality improvement. Also, with the inclusion of independent directors with firm views on corporate governance, organisational management becomes better,” said Sambuddha Deb, chief global delivery officer, Wipro.
The trend finds replication elsewhere. For example, ITC, the cigarettes to hospitality major, has 12 non-executive directors on its board of 16, three of whom were appointed in 2010.
While the two are technically dissimilar, the function that non-executive and independent directors perform are roughly equal. A non-executive director, even if related to the company in some way, does not hold a management function. An independent director is someone who has not been employed by the company or related parties for five years preceding the appointment.
According to data from the Bombay Stock Exchange (BSE), 7,193 people hold 9,852 independent directorship positions on the boards of 2,648 BSE-listed companies. This signifies that many occupy board positions in more than one company. Also, of the 7,000-odd independent directors, 6,086 individuals are directors only in an independent capacity and hold no executive positions in any company at all.
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“The number of non-executive and independent directors will see a marked trend, largely attributable to the need for clarity in corporate governance and improvement in investor confidence,” said E Balaji, CEO, Ma Foi Randstad.
The role played by non-executive directors has also been highlighted internationally. Research in Motion, maker of the iconic Blackberry handset has recently created a committee of non-executive directors to delineate the position of the chairman from that of the CEO.
“Among other things that (the) Satyam (scandal) did, it highlighted the need for correct corporate governance at the highest level. The appointment of credible faces from the corporate sector, along with government nominees, aided the company's revival. Since then, while pioneers like Infosys have strengthened their image, others have followed suit,” Misra explains.
That the appointment of Housing Development Finance Corporation (HDFC) executive chairman D S Parekh played a key role in the ultimate evolution from the scam-tainted Satyam Technologies to Mahindra Satyam is well known.
“The addition of a known retired civil servant or a corporate bigwig will automatically enhance the board’s quality, adding to investor confidence. Also, often, the presence of an outsider on the board of businesses run by friends and family is now being encouraged,” Balaji said.