Individuals can be independent directors in maximum 7 firms

Taking lessons from the Satyam scam,the government has put a plan together that will help prevent such incidents in the future.

Taking lessons from the Satyam scam,the government has put a plan together that will help prevent such incidents in the future. The government plans to separate the offices of chairmen and CEOs and limit the number of firms in which an individual can serve as directors to seven.

It also plans to make remuneration paid to independent directors comprise fixed and variable pay where the fixed component cannot be more than one-third of the pay and the variable component is based on attendance of meetings official sources told The Indian Express.

At present,the number of public limited companies,both listed and unlisted,an individual can serve on as a director is 15.

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According to the new corporate governance code that the corporate affairs ministry plans to bring in for greater compliance,when an individual is a managing director or whole-time director of a listed company,he can serve as a non-executive director in seven companies,of which only two can be listed.

Also,with regard to pay,independent directors can be paid a fixed contractual remuneration,subject to a ceiling or a percentage of the net profits of the company.

Surprisingly,according to the code,which is voluntary for companies,the independent directors can also be given stock options,in which case they will have to hold them for a period of three years after their exit from the board,the source added.

The government is likely to unveil the code on December 21,the final day of the Corporate Week to be organised across the country.

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Independent directors came into the limelight after the Maytas-Satyam deal was aborted in December last year. Soon after,founder chairman of the IT firm B Ramalinga Raju confessed to manipulation of the companys accounts. The freedom given to independent directors was brought into question after Rajus confession. Though the Serious Fraud Investigation Office (SFIO),the investigating arm of the corporate affairs ministry,gave a clean chit to the companys independent directors after conducting its probe,the events sparked a debate on the responsibility and accountability of independent directors.

The SFIO said the fraud could have been perpetrated due to a collusion between the companys auditors,the Raju brothers and ex-CFO of the company.

The code says that the audit committee of a company should appoint auditors and every company should obtain a certificate of independence from the auditors certifying his independence and arms-length relationship with the client company.

Most importantly,the audit partners should be rotated once every three years and the audit firm rotated every five years to maintain their independence and carry out audits with a fresh outlook,the code states.

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The code,which has been prepared in consultation with the industry,also lays down provisions for whistleblowing to check unethical behaviour and suspected fraud in a company.