regular-article-logo Tuesday, 06 June 2023

Worry over skillsets for board posts

Sebi has tightened rules on independent directors, noting their appointment, re-appointment or removal should only be through a special resolution

Our Special Correspondent Mumbai Published 01.07.21, 02:07 AM
Representational image.

Representational image. Shutterstock

Market regulator Sebi’s directive to companies to disclose the skillsets they seek in a director’s position and explain to shareholders how the appointee has attributes that fit those skillsets have drawn mixed reactions.

On Tuesday, the market regulator tightened rules on independent directors. It said that their appointment, re-appointment or removal should only be through a special resolution.


Sebi also laid out the process to be followed by the nomination and remuneration committee while selecting the candidates for appointment. It made the procedure more transparent, including enhanced disclosures regarding the skills required to be appointed as an independent directors and how the proposed candidate fitted into that skillset.

Some experts feel the idea will work only if the skillset brought in by an independent director complements those possessed by the others on the board. Others are of the view that the main job of an independent director is not to bring in a particular skillset to a company, but to protect the interests of its minority shareholders.

According to Shriram Subramanian, founder and managing director, InGovern Research Services, the decisions taken by the Sebi board on independent directors are incremental steps in a positive direction. He pointed out that one of the key positives is that the appointment of independent directors will be done only through a special resolution. At present, only their re-appointment or removal are done through such resolutions. Another good step is that the entire resignation letter of an independent director will be put in the public domain.

“I don’t think it will overhaul promoter influence and the spectrum of promoters from good to bad will remain the same. While Sebi has also stressed on skillset, the key is whether the skillset of an independent director complements other members on the board,” he added.

Pranav Haldea, managing director, PRIME Database Group, told The Telegraph that the primary role of an independent director is to safeguard the interests of minority shareholders. “In bringing in a special resolution in place of an ordinary resolution earlier, the regulator has achieved a fine balance between empowering minority shareholders while not adding to the burden of companies of getting a majority of minority investors to vote in favour, like was suggested in the discussion paper.”

He pointed out that there is an inherent conflict in the process of appointment of independent directors. Independent directors are supposed to safeguard minority investors from the very people who appoint and pay them. This measure undertaken by Sebi shall help in addressing this issue to some extent.

Promoter holding in most listed firms is 50-75 per cent. Though the influence of promoters will not reduce significantly, they will now have to engage more with minority shareholders to get the appointment done, he added.

On the skillset criteria, Haldea said, “A company can instead have an advisory board or hire consultants to bring in domain expertise.”

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