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CII welcomes e-governance initiatives by Government

New Delhi, November 17, 2006

CII welcomed the several e-governance initiatives of the Ministry of Company Affairs and its commitment to simplified laws and a compact Companies Act. CII in its submission to the Ministry of Company Affairs, has supported Dr JJ Irani Committee's recommendation that corporate boards should comprise of one-third independent directors, irrespective of whether the chairman is executive or non-executive.
 

At the core of corporate governance is the Board of Directors, which oversees how the management serves and protects the long-term interests of all the stakeholders of the company. To attain the highest standards of corporate governance, an active, well-informed board is necessary. Not surprisingly, corporate reforms focusing on board practices, across the world, have cast the responsibility of carrying forward these reforms on the Board of Directors. To reduce the possibility of conflict of interest, the focus has shifted on to the independent directors on the board, who are increasingly being looked upon as the conscience-keepers of the Company. As an outsider, an independent director brings to the board a fresh perspective and a wider outlook. Independent directors not only increase the quality of board 's oversight but also improve the ability of the board to exercise independent judgment.

Going forward, it is very crucial that the statutory provisions relating to independent directors, which would shortly be enshrined under the new company law proposed by the Ministry of Company Affairs, are directed to draw maximum benefits of independent oversight.

CII has further submitted to the Ministry that while remuneration or other payments received by a non-executive director should not be so high as to affect his independence of judgment, caution should be exercised while stipulating a uniform component across companies of varying sizes. CII has suggested that there should be a clear relationship between responsibility and performance vis-ŕ-vis remuneration and the policy underlying directors' remuneration be articulated, disclosed and understood by investors/stakeholders.

The representation by CII also upholds the suggestion of the Expert Committee on Company Law that the subsidiary company should not be required to necessarily co-opt an Independent Director of its holding company as an Independent Director on its Board as is the case presently under the existing clause 49.

On another issue, CII re-asserts the stance upheld under clause 49 of the Listing Agreement, which deems nominee directors as independent directors. It is true that nominee directors represent specific interests and have certain specific obligations, but that does not affect their independence vis-ŕ-vis promoter-directors. CII has also suggested that nominee directors be excluded from the board strength for the purpose of calculating the percentage of independent directors.

CII further supports the view that all non-executive directors should be treated at par and be held liable for prosecution for not complying with the applicable provisions. CII appreciates the recommendations of Dr J J Irani Committee, which suggest that all non-executive directors should be treated alike and be liable only in respect of any contravention which had taken place with his knowledge and where he has not acted diligently, or with his consent or connivance.

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