Mumbai: Terming as “far too high” the number of company directorships allowed to an independent director under Indian laws, a senior industry official said independent directors need to decide as to how many boards they can do justice to.
“My personal opinion is that the number of directorships that you can have is far too high. One has to decide how many boards one can do justice to,” former chief of Tata Steel and currently director, Tata Sons, Jamshed J Irani, said at a seminar here.
In India, presently, an independent director can be on the boards of 15 companies.
Irani said he personally felt the law should allow for only 10 directorships.
“In some US companies, they don’t have more than five directorships, not by law but by practice,” he said.
The role of independent directors and audit firms has come under the scanner after the Satyam scam, in which its founder chairman, B Ramalinga Raju, mis-stated the company’s accounts to the tune of over Rs7,000 crore.
“Just now, you’re allowed 15 (directorships) by the law and that is also in the companies listed on the stock exchange. There may be plenty of unlisted companies and those may not be counted,” Irani said.
“In the Tata Group, we try to follow the same practices in our unlisted companies as are being followed in the listed companies, including composition of the board, circulation of agenda papers and so on,” he said.
Irani, presently on the boards of Tata Sons, Tata Steel, Tata Motors and HDFC among others, said the number of independent directors on a company’s board “does not matter”.
Market watchdog Sebi has mandated that boards of listed companies should have 50% independent directors.
“The number of independent directors does not matter. One good independent director is (all that is) needed,” he said, adding that companies should record and minute their views and provide for these not to be over-ruled.
Asked the steps to be taken to strengthen the role of independent directors, Irani said, “I don’t think we need more regulations or any changes. A nomination committee comprising of independent directors should be set up to choose more independent directors.”
He said it is quite possible that independent directors feel restrained in the presence of the chairman and the chief executive officer of a company.
“Resignation is a final step, when you find that you’re in a minority,” Irani replied, when asked whether putting in one’s papers was a way out if faced with great opposition from other board members.
He also said that an independent director must not let his objectivity be compromised, irrespective of the relations he has with the promoter-family.