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K.R. Srivats

NEW DELHI, Jan. 26

IN a complete reversal of its earlier position, the Securities and Exchange Board of India (SEBI) has now held that institutional directors on the boards of Government companies would be considered "independent directors". This new position has significant implications for Government companies as regards adherence to corporate governance norms.

The corporate governance norms specified under Clause 49 of the Listing Agreement require companies with a non-executive chairman to have at least one-third of the board comprising independent directors. In the case of a company having an executive chairman, at least half of the board should comprise independent directors.

The meaning of independent directors has already been explained under clause 49 as directors who, apart from receiving director's remuneration, do not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the board's judgment may affect the independence of judgment of the director.

The existing corporate governance norms also require an "independent director" to be chairman of the audit committee, that needs to be set up by companies adhering to such norms under clause 49 of the Listing Agreement.

According to sources, SEBI has already advised stock exchanges to amend the Listing Agreement so as to specify that "institutional directors on the boards of companies should be considered independent directors whether the institution is an investing institution or a lending one." Prior to this change, clause 49 specified that "except in the case of Government companies, institutional directors on the boards of companies should be considered independent directors whether the institution is an investing institution or a lending institution".

SEBI, in the first week of this month, directed the stock exchanges to amend clause 19 of the Listing Agreement to specify that companies would be required to give prior notice of at least 7 days to the exchanges about board meetings at which the proposal for buyback of securities is to be considered. Further, clause 20 of the Listing Agreement is also being amended to specify that companies should intimate the stock exchanges within 15 minutes of the closure of the board meetings about the decision on the buyback.

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