Says proposed changes are in the best interests of employees
NEW DELHI: The Parliamentary Standing Committee on Finance, which has reviewed the Companies Bill 2009, has called for clearly-defined roles and responsibilities of independent directors, along with a standardised process of appointment.
The observation came in response to the Ministry of Corporate Affairs’ submissions in the wake of the Satyam Computer accounting scam, where its founder and chairman, Ramalinga Raju, admitted to falsifying accounts for years. This came despite the presence of several high-profile independent directors on the board of the company.
In its submissions, the ministry initially told the committee that since independent directors as a concept was being proposed, there was a need to set up a regulatory oversight mechanism, along with rules and regulations, so that a panel of names could be maintained.
The government said the Bill provides for the attributes, powers and duties of the independent directors, in addition to the provision in respect of the Directors & Officers insurance policy. At present, only listed companies are required to comply with Sebi’s listing norms, which, among other things, mandate the composition of the board.
The ministry later said the independent directors would be liable only in respect of such acts of omission or commission by the company or an executive that has occurred with his knowledge, and that is attributable to the board. Besides, the ministry said non-executive directors would not be entrusted with responsibilities relating to day-to-day management.
In its report, the committee said it supported the proposed changes regarding the duties of a director to promote the objects of the company in the best interests of its employees, the community, and the environment.
“The appointment of independent directors should not be a case of mere technical compliance reduced to the letter of the law. It is important that independent directors play their designated role to nurture the financial health of the company and to protect the interests of various stakeholders, particularly the minority ones. The committee, therefore, believes provisions pertaining to Independent Directors should be distinguished from other directors in the Bill,” the report said.
The parliamentary standing committee has also suggested a provision be made for rotating independent directors by restricting their tenure in a company to say, five years. It has also said the government should explore the feasibility of advisory boards for larger companies comprising qualified persons or professional experts.
The standing committee’s recommendations are not binding on the government.