Apropos your excellent editorial “Step forward for boards” (April 04). As you say, the report by the committee, chaired by Uday Kotak, is indeed “an important step forward in corporate governance”.
You are being charitable when you say “boards are too subservient to promoters or can be easily misled by promoters and management”. Barring a few top notch, well known ethical and uncompromising ‘independent directors’, most boards are filled with ‘friends and aquaintances’ of the promoters who will not create any unnecessary problems for the promoter during board meetings. Most board meetings are ‘very amiable, friendly, topped with good hospitality and nice gifts’ with everyone patting each other’s back; more like a social gathering with little or no time spent on analysing information disclosed to independent directors. Heavens forbid if an independent director criticises any actions of the chairman and family members. Things are infinitely worse in unlisted and private holding companies.
Hardly any independent directors are ‘selected’ from the many portals set up for creating database of eligible independent directors for compliance under ‘Clause 49’ that lays down clear rules about the composition of boards of listed companies. Most come through social contacts. Whether they are highly experienced corporate professionals or not is immaterial. The cardinal principle is that they should not give any headache to the chairman. Of course the ‘very few top notch ethical and uncompromising’ ones are in great demand and end up accepting too many directorships which affects their ability to “properly conduct their duties on behalf of small shareholders”. Their time commitment is often stretched too far. Most companies just don’t want ‘competent, experienced, diligent but relatively unknown’ independent directors because of the possibility of these guys applying their own mind and actually acting as independent — a much misunderstood term.
Here’s hoping, acceptance by the Securities and Exchange Board of India and implementation of the Kotak Committee recommendations will address some of these crucial issues for improvement of corporate governance standards in the country for which there is an acute need.
Krishan Kalra Gurugram