The Hindu Business Line : 50 pc of board must comprise non-executive directors: SEBI

THE Securities and Exchange Board of India has now specified that not less than 50 per cent of the board of directors should consist of non-executive directors. If the chairman of the board is a non-executive director, at least one-third of the board should consist of independent directors and in case he is an executive director, at least half of the board should comprise independent directors.

These are changes effected in Clause 49 of the Listing Agreement, suggested by the N.R. Narayana Murthy Committee on corporate governance. The revised clause has taken into account the suggestion received after the draft committee report was placed for public comments.

The new clause also says that compensation paid to non-executive directors, (including independent directors) should be fixed by the board and will require previous approval of shareholders.

The shareholders' resolution shall specify the limits for the maximum number of stock options that can be granted to non-executive directors, including independent directors, in any financial year and in aggregate, according to the new Listing Agreement.

The remuneration paid to directors should be disclosed in the section on corporate governance in the annual report of the company. This includes details on stock options, pensions and criteria fro payment to non-executive directors.

A director cannot be a member in more than 10 committees or act as chairman of more than five committees across all companies of which he is a director. Further, the clause specifies a mandatory annual requirement for every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place.

Strengthening the responsibilities of audit committees, the clause says the audit committee should have minimum three directors as members. Two-thirds of the members of audit committee shall be independent directors.

Further, all members of audit committee should be financially literate and at least one member should have accounting or related financial management expertise.

The audit committee is empowered with the right to investigate any activity within its terms of reference, to seek information from any employee, obtain outside legal or other professional advice and to secure attendance of outsiders with relevant expertise, if it considers necessary.

Regarding disclosures of related party transactions, the clause now says that a statement in summary form of transactions with related parties, whether in the ordinary course of business or not, shall be placed periodically before the audit committee.

A management discussion and analysis report detailing the industry structure and developments, opportunities and threats, segment - wise or product-wise performance, risks and concerns, market outlook etc. should be included in the directors' report of the annual report.

Application of funds, raised through a public offer, must be reported on a quarterly basis to the audit committee, the report further adds.

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50 pc of board must comprise non-executive directors: SEBI