Sebi chairman: “Independent board members have disappointed.”
There are approximately 6,800 listed companies, and the Sebi’s listing obligations and disclosure regulations (LODR) require them to follow basic corporate governance principles to ensure that no stakeholder is treated unfairly.
Ajay Tyagi, chairman of the Securities and Exchange Board of India (Sebi), said on Tuesday that the market regulator has failed to ensure that independent directors are not influenced by company promoters, despite many attempts to secure minority shareholders’ interests.
“Despite numerous efforts, we have yet to find ideal solutions to issues such as ensuring the independence of independent directors, selecting the best-suited persons as independent directors, and making their position more efficient and meaningful,” Tyagi said at the Confederation of Indian Industry’s corporate governance summit.
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“Another common concern is that, no matter how strong the procedures for appointing independent directors are, those who are really not independent will never be. It is true that norms cannot completely govern human behaviour. However, it is our goal to achieve greater balance, accountability, and efficiency in the appointment of independent directors and the functioning of corporate boards through enhanced processes and disclosures,” Tyagi said.
The primary goal of the Sebi in mandating independent directors in listed companies is to ensure that the investments made by millions of small retail shareholders in these companies are not subjected to undue risk.
Sebi released a consultation paper on March 1 seeking to make the procedure of appointing and removing independent directors more clear.
For both promotions and resignations of independent directors, Sebi needs a company to get dual approval, one from the board and the other from minority shareholders. Currently, an independent director can only be named if a majority of shareholders, both promoters and non-promoters, support it.
If an independent director leaves aboard, the full resignation letter should be reported to the stock exchanges, according to Sebi. It has also recommended that independent directors be compensated with long-term equity options rather than profit-linked commissions.