Top 500 listed cos do not follow optimal board composition, IiAS study said
Top 500 listed cos do not follow optimal board composition, IiAS study said
While listed firms are required to have an optimal board composition comprising both independent and executive directors, a study done on top 500 listed companies by market capitalisation revealed that most Indian boards follow the regulations in letter, but not in spirit.
According to proxy advisory firm Institutional Investor Advisory Services (IiAS), this trend is evident from the prolonged tenure of independent directors, low attendance levels, poor gender diversity and the unwillingness to professionalise the management. In order to ensure that companies comply with the basic tenets of corporate governance while firming up their board structure, the Companies Act 2013 and Clause 49 of the Listing Agreement have specified thresholds for independent representation, age and experience of directors, maximum number of directorships, gender diversity and board size.
“However, Indian companies fare poorly in this regard,” stated IiAS. According to it, 85 companies or 17 per cent of the top 500 companies are non compliant with the regulatory requirement regarding the board composition.
Even with companies, which comply with the regulations, many independent directors have been on the board for several years, in some cases for over 50 years. This according to IiAS impedes their ability to be neutral and unbiased.
In aggregate, 460 out of a total of 2,237 independent directors have tenure of more than 10 years. If all these vintage directors (tenure of more than 10 years) are considered non-independent, the percentage of non-compliant boards will increase from 17 per cent to 54 per cent.
IiAS wants listed companies especially those in the S&P BSE 500 to take the lead and start complying with the spirit of the regulations by classifying directors who have been on the board for more than 10 years as non independent and induct additional independent directors to comply with the regulations. “This will go a long way in improving investor perception and the overall quality of board deliberations,” it added.
