Companies

1 in 4 listed PSUs do not have independent directors: report

Varun Aggarwal Mumbai | Updated on January 22, 2018 Published on November 27, 2015

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As many as 25 per cent of the listed public sector companies have no independent directors on the board, reveals the India Board Report 2015-16, published by Hunt Partners in association with AZB & Partners and PwC.

The lowest representation of independent directors was in listed public sector companies (40 per cent) in 2011-12, which declined further to 37 per cent in 2014, the report said.

The Companies Act, 2013, precludes relatives and those with financial relationships with the company from becoming independent directors. However, the IBR survey 2014 found that around 25 per cent of companies had so-called independent directors, who were relatives of the owners.

It is surprising that 97 per cent of independent directors reported that their letter of appointment does not mention the workload expected from them. Also on an average, an independent director commits less than nine days per year to board work.

This compares very unfavourably with recent research results by McKinsey that identified the average work commitment in top international companies at 40 days! If Indian companies are to expect higher levels of professionalism from their boards, surely the input from directors needs to increase substantially.

Stakeholders and lawmakers globally are demanding more diverse and better quality boards. The Companies Act, 2013 mandates inclusion of at least one woman director on the board of directors for listed firms. At the time of the survey, 64 per cent of the surveyed firms were lacking in this respect. Women constitute only 5 per cent of the total number of directors.

While the law has laid the foundations, the findings from the IBR survey show that Indian boards are still struggling to find competent women and independent directors.

Only 35 per cent of the companies have the board meeting agenda authored by independent directors, thereby undermining their participation and contribution in these meetings.

Yet the last three IBR surveys have seen more than 1000 per cent increase in the average compensation given to independent directors who are also board chairpersons.

Published on November 27, 2015
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