Independence of directors

BS OPINION

 The Companies Bill, 2003 also suggests major changes in the duties and responsibilities of non-executive directors. And the Narayana Murthy committee, constituted by the Securities and Exchange Board of India (Sebi), suggested the amendment of Clause 49 of the listing agreement to strengthen the position of independent directors.

 The unstated premise behind the suggestions of all these committees is that independent directors will be able to act as watchdogs in the interest of shareholders.

 But for that to happen, the first requirement is that independent directors should be truly independent.

 Clause 49 of the listing agreement therefore decrees that they should not be related in any way to the company or its directors, and that they should not have any pecuniary relationship with the company or its management.

 In short, there should be no conflict of interest. But to ensure that the opinions of independent directors count, there must be a sufficient number of them on the board. Sebi has therefore revised Clause 49 to provide that at least half the board should be made up of independent directors.

 In case of a non-executive chairman, however, at least one-third of the board should be made up of independent directors. Audit committees will have only non-executive members, with the majority being independent.

 Directors on audit committees will now have to be