1/3rd of board to be independent

Ministry to follow JJ Irani panel recommendations.

The ministry of company affairs is going ahead with the JJ Irani Committee's recommendations specifying that at least one-third of a public company's board be made up of independent directors.

The proposal is expected to be part of the new Companies Bill, which is being given final touches. The ministry also wants to insist on a similar composition for boards of companies accepting public deposits.

"We are broadly in agreement with the Irani Committee's recommendations on independent directors," Company Affairs Minister Prem Chand Gupta told Business Standard.

The ministry's proposal will not affect Securities and Exchange Board of India's requirement under Clause 49 of the listing agreement. But its stand that the nominees of banks and financial institutions should not be treated as independent directors is contrary to the market regulator's definition of independent directors.

Sebi's definition excludes all interested parties but allows the nominees of institutions to be treated as independent directors irrespective of whether an institution is an investing institution or a lending institution.

Top executives, leading lawyers and a couple of management consultants contacted by Business Standard said having nominees of banks and financial institutions defined as independent directors would be incongruous vis-à-vis the concept.

At a CII seminar on governance recently, corporate representatives expressed reservations on the concept of independent directors.

They felt that independent directors would be able to devote only about a couple of weeks to a company's affairs and would not have any understanding of its business.

Sebi's listing agreement specifies that at least 50 per cent of members on the board of a company have to be independent directors if the company's chairman is the executive director, and at least one-third should be independent directors if the chairman is a non-executive director.

BOARD TALK

The proposal is expected to be part of the new Companies Bill, which is being given final touches

The ministry also wants to insist on a similar composition for boards of companies accepting public deposits

The ministry's proposal will not affect Sebi's requirement under Clause 49 of the listing agreement

Sebi's definition excludes all interested parties but allows the nominees of institutions to be treated as independent directors irrespective of whether an institution is an investing institution or a lending institution