July 3, 2017

Taking a dim view of the absence of selection procedure for independent directors, Sebi chief Ajay Tyagi today said many are part of "closed clubs" who are appointed at whims and fancies of companies' promoters.

While stressing that corporate governance practices need to be improved, Tyagi said some people are quite serious when they take up the role of an independent director, but there are plenty who are just eager to join the board as per convenience.

Speaking at an interactive session with officials from public sector companies, Tyagi said corporate governance is an important issue even as he acknowledged that in India, it is very typical that promoters are quite dominant in companies.

"There is no procedure for selection of independent directors. Many of them, they are in closed clubs, the same people getting nominated or appointed to the same boards.

"... I was told some people said that the Companies Act, 2013 (rules) are so stringent that people can go to jail. My only question was that how many people have gone to jail," the Sebi Chairman said.

Further, he said independent directors have serious fiduciary responsibility to fulfil, while another issue is about audit committees.

"In fact, in listed companies, the whole discipline is through audit committees and independent directors broadly... We found that (there is) much need for improvement," he said.

In many cases, independent directors are appointed and removed at whims and fancies of promoters of companies, he added.

The Uday Kotak committee, set up in June, has been requested them to give the report in four months so that "we (can) take a serious relook at what needs to be done to improve corporate governance," he added.

Tyagi also said that norms pertaining to independent directors and women directors should be done in a timely manner for public sector companies also.

Referring to India's high rank with respect to minority shareholders in a report prepared by the World Bank, Tyagi said what needs to be done now is to match up to the regulations.

"By way of Sebi regulations in what (we) subscribe, in the World Bank ranking of the country in terms of the issue of minority shareholders is ranked as high as 13. The perception outside is that our regulations are quite good," he noted.

During the session, NTPCBSE 0.80 % Chairman and MD Gurdeep Singh mentioned that rather than quantity it is about quality of independent directors that matters.

"We have only three independent directors instead of nine and we believe that they are taking care of probably nine directors... who might not able to take care of involvement. If you are increasing the number in the board, then probably in my opinion it might become counter productive," he opined.

In response, the Sebi chief said that three (independent directors) doing the same job of nine is "like actually a loaded statement and I hope you meant in the right perspective".

Following the remark, the NTPC chief responded saying "absolutely".

Further, Tyagi said independent directors in some companies "if I may say that (are) troublesome also".

"The quality of independent directors is what I said from the beginning that there is not even an SRO (Self Regulatory Organisation). In many organisations there is an SRO, which brings some self discipline and there is nothing here at all.

"Let SCOPE also say that there are too many of them but as of now, the situation of independent directors is that generally companies are driven by promoters," he noted.

The event was organised here by the Standing Conference of Public Enterprises (SCOPE), a grouping that represents central government public enterprises.

[The Economic Times]