The days of serial independent directors are over: Anil Singhvi

Interview with founder director of proxy advisory firm IIAS

Anil Singhvi, founder director of proxy advisory firm Institutional Investor Advisory Services (IIAS), favours more stringent restrictions on the number of board positions that an independent director can hold, and the length of their term. Respected in corporate circles for his subtle deal-making abilities, the former managing director-CEO of Ambuja Cements shares with Sudipto Dey his take on some aspects of the new Companies Act. Edited excerpts:

What challenges do you see in front of independent directors, while living up to the spirit of their new responsibilities?

Independent directors' role is no longer ornamental. Many of them were what I call "serial" directors - rushing from one board meeting to another during each quarterly board meetings. But now under the new Act, they will have to get functional. They will be expected to get deeper into the agenda of the company. Their accountability now is almost at par with other directors on the board. As their work load goes up and to be more effective, there has to be further restrictions on the number of board positions a person can hold for listed companies.

Does the new Act live up to the corporate governance standards sought by long-term serious investors, like pension funds?

It should help attract investment from long-term quality investors like pension funds, endowment funds etc., as corporate governance standards improve. Once you have a few class action suits, the message would go across to all stakeholders on the importance of keeping up the level of corporate governance.

What are your biggest concerns with the new Companies Act?

The length of independent director's term is a concern. They can be there with the company for a fresh term of 10 years without factoring the previous term which in many cases run for 20 or 30 years. Previous term has to be computed at least for the listed companies.

Another concern is about related party transactions. Quantum of royalty payouts should be decided by majority of minority shareholders. The royalty should not be calculated on the basis of turnover but should be based on profitability of the company.

The issue of corporate social responsibility (CSR) spend has agitated many in the corporate world. What is your take on this?

It is a step in the right direction. However, corporate social responsibility spend should progressively be increased from two per cent to five per cent. If the managing director can be allowed to take five per cent of profit as commission without that being seen to impact health of the company, why should CSR spend not be at par with the managing director's commission?