Boards of Indian companies are becoming getting older but more independent

The composition of the boards of directors of Indian companies is fast changing, as they are becoming more independent and getting older. The average tenures of independent members are becoming shorter. This comes in the backdrop on the effectiveness of the independence of the board being questioned after recent corporate frauds, according to global brokerage firm CLSA.
 
Thanks to a change in law for having at least half of the directors as independent and a woman on the board, the director composition has continued to evolve in the direction of higher independence and greater diversity.
 
The Companies Act, 2013, mandated that listed firms must have one female director from April 1, 2015, with businesses given one year to comply. Among the BSE100 companies, women directors in FY19 comprise 15.2 per cent against 7.9 per cent in FY14.
 
The firm's analysis of 411 directors on boards of 38 BSE100 companies also indicated that the average age of the directors rose to 63 years in FY19-end, compared to 59 years at the end FY09.

The rise in the board's average age is due to the rising ages of the existing members who were present on the board a decade ago. According to CLSA, it is not uncommon to have around 30 per cent of the board remaining unchanged, as many companies have promoters as board members who seldom retire.
 
Among industries, none of the sectors stands out as particularly young or old. However, each has seen an increase in average age over the past 10 years. The data shows that little board diversity in terms of age, with only 7 per cent below the age of 50 years in FY19, which is down from 18 per cent in FY09 when the board was much younger. 
 
This trend in India is in line with global trend as an analysis of Nasdaq 100 companies suggests an average board's age of 62 years. The small gap is surprising considering that Nasdaq 100 mostly comprises hi-tech and modern firms. This also indicates a preference for experienced board members in India, which reduces the chances of young people joining the board, unless they are from the promoter's family, the CLSA said.
 
The S&P 500 and Nikkei 225 have a similar average age for their board members, at 63 years for each. However, as disruptive factors and tech advancements become more important for Indian businesses, the CLSA said it was worth questioning whether Indian boards need more young blood or experience is important.   
 
The average board size among BSE100 companies has slightly increased over the past five years, hovering at 11 members per company.
 
India Inc's board size is also in line with global companies, as Nasdaq 100 companies have an average of 10.3 members while the S&P500 and Nikkei 225 average was 11 members and 10.9 members, respectively.
 
Importantly, the average tenure of independent board directors has declined, as the Companies Act, 2013, sets a maximum tenure of an independent board member at two continuous five-year terms. "Thus, an independent member cannot remain on the board of a company for more than 10 continuous years. As such, the average tenure has declined from 10.1 years in FY14 to 6.5 in FY19," the CLSA said.