For India Inc, independence seems to be a “theoretical construct” as around 25 per cent of Indian companies had so-called “independent directors”, who were relatives of the owners, a survey has said.
In India, many companies are closely held by the promoters and although some of them have evolved to be managed by professionals, the board often remains in the control of the promoters. As a result, even if the CEO/MD is not the chairperson, the position is often held by a confidant of the promoter. This is reflected in the fact that only 10 per cent of the companies have an independent director as the chairperson, said a joint survey by Hunt Partners, AZP & Partners and PwC.
However, this is not the case with the listed MNCs in India; 67 per cent of them appointed an independent director as the chairperson, the survey said.
“Although, in last one year, Indian regulations have become more stringent to make corporate governance in India stronger, but one has not seen much of a change on ground. Indian boards continue to remain a cozy club of friends and relatives with virtually no accountability. I hope and expect the boards to be more accountable and shareholders to be more demanding with class action suits now being a possibility in India,” Anil Singhvi of ICAN Advisors said in the report.
It said 92 per cent of the companies in India have not appointed a lead independent director. “There is a pressing need to appoint lead independent directors but the process will have to be well thought through, else it will create ‘two power centres’ in the company board,” it said.
Further, 65 per cent of companies don’t have independent directors driving the board meeting agenda.
Regarding the stipulation of a woman director on the board, it said many appointed immediate family members — wives or daughters — of their promoters to evade penalties. This ensured a tick in the compliance box, but defeated the intent behind the regulation. While Companies Act, 2013, recommends that companies separate the offices of the chairperson and CEO and managing director, 68 per cent of companies in India do not have a separate chairperson and CEO/MD, the survey said.