“So much is the worry that an unsubstantiated letter written by a customer to board members was debated for half an hour in a board meeting,” an independent director said.
MUMBAI: For a well known tax expert based in Mumbai who is on the board of an infrastructure company, recommendations by the committee formed by Sebi were the last straw. The expert, who sits on the board for the last five years, is now planning to render his resignation in next few months. He fears that he may end up in a legal tangle as the company is “unable to tackle rising debt problem”. He may not be alone.
As compliance burden increases for independent directors many of them are planning to press the exit button. The committee on corporate governance, formed by market regulator Sebi in June 2017 under the chairmanship of Uday Kotak, has recommended several changes in current regulations to improve the standards of corporate governance of listed companies in India.
“Independent directors are now more cautious while selecting a company on whose board they plan to sit and there is reluctance to be part of boards where the standard of corporate governance and compliance are low or there are some potential problems. Every aspect of the company including corporate governance, debt, past or potential fraud, profile of promoter are being scrutinised by independent directors who have a good profile and reputation,” said Rajesh Narain Gupta, managing partner, SNG & Partner, who also sits on the board of one of the well-known housing finance companies in the affordable housing space. In the last two years, many independent directors have been resigning from companies they feel could land them in trouble.
“So much is the worry that an unsubstantiated letter written by a customer to board members was debated for half an hour in a board meeting,” an independent director sitting on a financial services company said. According to the figures obtained by Prime Database, till date 851 independent directors have resigned since 2016. Some experts point out that going ahead more independent directors would resign from various companies.
“Over a period of years, the role and responsibility of independent directors has become more onerous, and this is primarily due to enhanced expectations from directors qua their role in governance of listed companies,” said Ketan Dalal, managing partner at advisory firm Katalyst Advisors who also sits on the board of two well-known companies.
In last two years independent directors have resigned from debt laden companies, or companies that have been declared to be non-performing assets (NPA). Independent directors are also cautious in cases where the promoter is too flamboyant, say industry insiders. Going ahead, many companies may even find it hard to find independent directors, feel industry trackers.