Market regulator SEBI favours giving more say to minority shareholders in the appointment of independent directors. On Monday, the market regulator put out a discussion paper for reviewing the norms of appointments on listed company boards.
Independent directors are mainly the guardians of minority and public shareholder rights. Their main job is to see that the company improves its corporate credibility and governance standards.
SEBI has now proposed that approval of independent directorsshould be done by a ‘simple majority of minority’ shareholders. That is, 75 per cent or more minority shareholder votes among those present in the meeting. Minority shareholders would mean shareholders, other than the promoter and promoter group.
SEBI said some jurisdictions, like Israel, have provisions for appointment of independent directors by minority shareholders. In the UK, for premium listed companies that have a controlling shareholder, a dual voting structure has been adopted whereby the appointment of independent directors must be approved both by the shareholders as a whole and by the independent shareholders. If either of the resolutions fails, and the company still wants to propose the person as an independent director, it can put the matter to a second vote of all shareholders including the controlling shareholder.
SEBI now wants appointment and re-appointment of independent directorssubject to “dual approval” — of shareholders and the majority of minority shareholders — taken through a single voting process.
SEBI said that if the approval thresholds are not met then a second vote for that person can be done after a cooling-off period of 90 days but within 120 days. Such approval for appointment/re-appointment shall be through a special resolution and the notice to shareholders will include reasons for proposing the same person despite not getting approval of the shareholders in the first vote.
Removal of IDS
For removal of independent directors, too, SEBI wants approval of minority shareholders by a simple majority. Currently, they can be removed by a simple majority in the first term and through a special resolution in the second, after giving him a reasonable opportunity to be heard. This process gives promoter(s) significant influence and SEBI wants to give minority shareholders a say in the removal process, too.