Policy

Independent directors will soon have to take exams before appointment

Bloomberg June 12 | Updated on June 13, 2019 Published on June 12, 2019

Independent directors on company boards will soon have to clear an exam before they can be appointed, said Injeti Srinivas, the top bureaucrat in charge of corporate affairs.

Who will watch the watchdogs has become a burning question in India, which has in the past year charged a jeweller with defrauding a state-run lender of more than $2 billion, seen defaults at non-bank financiers send its financial system to the brink of a crisis, and and watched as billionaires toppled into bankruptcy. Observers say the companies’ independent overseers should have detected signs of trouble even before they manifested.

“We want to demolish the myth that independent directors don’t have any fiduciary duty,” Srinivas said in an interview in New Delhi on June 6. “We want to propagate corporate literacy to make them aware of their duties, roles and responsibilities.”

The exam will be an online assessment covering the basics of Indian company law, ethics, and capital market norms among other areas, Srinivas said. While aspiring directors will have a fixed time frame within which they have to clear the exam, they will be allowed an unlimited number of attempts, he said.

Experienced directors who have already been on boards for several years will be exempt from the test but will have to register themselves on a database the government is preparing. This compilation will be a one-stop platform where companies looking for independent directors can meet those willing to serve, Srinivas said.

According to existing law, every company listed in India has to have independent directors accounting for at least a third of its board strength. Their main duty is to act as overseers outside the influence of the firm, safeguarding the interests of minority shareholders.

Recent experience has shown lapses. Top banks are grappling with allegations of improper lending and the banking regulator banned SR Batliboi & Co., an affiliate of EY, from bank audits for 12 months.

Credit rating companies failed to warn of impending defaults at IL&FS Group, and the Corporate Affairs Ministry has sought a five-year ban on Deloitte saying that they failed to enquire into IL&FS loans.

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Published on June 12, 2019
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