Dilip Thakkar, a chartered accountant, and a non-executive director on the board of 14 listed companies, has a tough task at hand. By September 30, he has to give up seven of these positions. Sebi has put a cap of seven for the number of directorship positions that an independent director can hold. "Every company is asking me not to leave its board. But, I have to take few hard decisions," says Thakkar, clearly miffed by the turn of events.
Like Thakkar, there are several incumbent directors in company boards who hold more than the mandated number of directorship positions. Corporate legal experts point out that several hundred companies need to re-constitute their board over the next two months, in line with requirements of Sebi's listing agreement when it comes to independent directors (IDs), and having woman directors on board. It is estimated corporate India would see an additional need for up to 5,000-odd independent directors by 2019.
Similarly, of 1,500-odd companies listed on the NSE that need to have a woman on their board by October 1, 821 directorship positions are still vacant (as of August 11), according to indianboards.com. In the past three months, 147 companies filled this position with at least one woman on their board. A recent study by law firm Khaitan & Co found that among 1,470 public-listed companies, the number of women on these boards were 350. The report said India Inc would need to appoint 966 women to company boards by October 1. Some companies have looked inwards toward family and friends to meet the obligatory woman directorship norm.
Many like Thakkar feel many companies may be forced to fill these vacancies through stop-gap measures. "That could have an impact on quality of corporate governance in many of these boards," says Thakkar.
Nawshir H Mirza, who is on the board of Tata Power and Thermax, shares another concern that the nomination committee in the board may have: "Untried and untested directors may make it to the board," he says, though he welcomes the cap on the directorships that an independent director can hold. Many veteran board directors share juicy tales of where they had to cut short a board meeting to oblige another director to attend a board meeting of another company. "With the cap, directors will now be able to give more time to the boards they are in," says Mirza.
Sudhir Soni, partner in a member firm of Ernst & Young Global, feels some of the functions of independent directors under the Companies Act breach into management territory. For instance, independent directors would play a role in deciding the remuneration package of key managerial personnel and senior management in a company, or have the responsibility to balance the interest of all stakeholders. Many corporate, legal and management experts, including some incumbent directors, say that boards of most mid-sized companies - that have been largely promoter-driven - are yet to fathom the full import of the churn in the boardroom. "Many of our clients are still looking for escape routes to tide over the challenges thrown by listing agreement and the Company Act," concedes a consultant in a multinational audit firm. These firms are likely to miss the bus on October 1, feel experts.
Companies say that they feel restricted by the limited pool of IDs and their quality. The Institute of Cost Accountants of India, the Institute of Company Secretaries of India (ICSI), the Institute of Chartered Accountants of India have joined hands to create an independent director repository portal. According to M S Sahoo, secretary, ICSI, the target is to create a pool of 10,000 professionals over the next six months of potential independent directors. "That is the minimum threshold if we have to improve the quality of independent directors and governance in boardroom," says Sahoo.
In the next few weeks, the big churn in the boardroom will begin.