30 Under 30 2024

Most Indian companies don't have lead independent director

Study finds companies circumventing law to ensure compliance on paper

Shruti Venkatesh
Published: Nov 30, 2015 02:46:36 PM IST
Updated: Nov 30, 2015 06:07:25 PM IST
Most Indian companies don't have lead independent director
Image: {Shutterstock}
The study, ‘India Board Report 2015-2016’, found that 12% of the companies have directors related to the promoters and 25% of the companies have directors directly related to the CEO or the chairperson of the company

Over 90 percent of companies in India do not have a lead independent director who reviews and advises the board on agendas and represents the view of other directors, says a study by talent advisory firm Hunt Partners in collaboration with PwC India and AZB Partners.  

The report, which was unveiled on Friday, is the outcome of a study of the boards of over 500 companies, a representative set of Indian, MNCs, and public sector companies.   

Titled ‘India Board Report 2015-2016’, the study notes that from 2011-2014, the highest representation of independent directors was on the boards of BSE-listed and privately owned companies, while the lowest representation was on the boards of public sector companies. In fact, 25 percent of the listed public sector companies had no independent director on board.  

Sunit Mehra, managing partner, Hunt Partners, said: “The subject matter of board effectiveness is now front and centre for all well-managed companies. Seen in this context, the report does indicate that corporate governance in India still has some distance to cover.”

The Companies Act, 2013, prescribes a code of conduct and other duties for independent directors. This code places a significant onus on independent directors to safeguard legitimate interests of the company and its stakeholders. Surprisingly, 97.5 percent of independent directors of surveyed companies did not have their roles clearly defined at the time of appointment.  

While the Companies Act, 2013 forbids relatives and those with financial relationships with the company from becoming independent directors, the study found that 12 percent of the companies have directors related to the promoters and 25 percent have directors directly related to the CEO or the chairperson.  

The Act also makes it mandatory to have at least one women director on the board. Yet, 64 percent of the companies surveyed didn’t have a woman on their board. Many others appointed immediate family members – wives or daughters—to circumvent the real purpose of the regulation and ensure compliance on paper.   

Noshir Kaka, managing director, McKinsey & Company, India, who was a part of the panel discussing the report and its findings said: “As highlighted by the report, good governance, including clear allocations of roles and responsibilities to independent directors…and constitution of strong independent board with external professionals are important attributes.”

The report states that the top three parameters that can enhance overall governance are by separating the offices of CEO/MD and chairperson, mandatory formal whistleblower policy in companies and managing risk facing business.

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