Governance gets a thumbs-down

The average board in the top thirty Indian firms has nine to twelve members and a rising number of independent directors, but more than half...

The average board in the top thirty Indian firms has nine to twelve members and a rising number of independent directors, but more than half failed to appoint a separate chairman and a managing director and only four had functioning nomination committees, Icra said in a survey on Thursday.

Icra8217;s survey of the 30 largest companies that comprise the BSE-Sensex, excluded banks and financial institutions. It used publicly available data for the survey, and concluded that there is a positive overall trend in Indian corporate governance, though 8216;8216;substantial progress needs to be made in several key areas.8217;8217;

Areas of concern include criterion for selection of independent directors, financial literacy of audit committees, and linkage of pay with performance for directors.

8216;8216;It is expected that, following the recent amendment to Clause 49 of the Listing Agreement, some of these issues would be taken care of,8217;8217; Icra says.

The survey found a wide divergence in the remuneration paid to independent directors across, and sometimes within, companies.

Besides, only seven firms did not have a remuneration committee, though this is not a mandatory requirement under Clause 49, it finds. The problems areas, Icra says, remain in terms of independence of directors and nomination committees. 8216;8216;Only four firms had functional nomination committees, this may be considered a major negative from the government perspective, as it seems to point at the absence of a structured approach to selecting independent directors.8217;8217;

Icra has also raised doubts on the 8216;8216;so-called8217;8217; independence of the directors. 8216;8216;More than ten companies had independent directors constituting more than 50 per cent of the board. However, it must be clearly acknowledged that there is a limitation in evaluating8230; given that the survey was based entirely on published information available in the public domain,8217;8217; Icra8217;s survey says.

Boardroom findings

8226; Average board has 9-12 members

8226; No separate chairman and MD posts

8226; Increasing number of independent directors

8226; Financial literacy of audit panels a concern

8226; Pay not linked to performance of directors

8226; Few firms have a remuneration committee