Nominees should not be considered independent directors: ICSI
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Last Updated: Thursday, December 10, 2009, 00:28
New Delhi: The Institute of Company Secretaries has said that representatives of financial institutions on the board of a company should not be considered as "independent directors" as they are more concerned about safeguarding their own interest.

In a recommendation on corporate governance given to the Corporate Affairs Ministry, ICSI suggested that considering nominee directors as independent directors is an "anomaly" and "needs to be rectified", as they may not be truly independent.

"The nominee directors have a clear mandate to safeguard the constituency they represent, i.e, the financial institution they represent. Hence, to term them independent is an anomal...(and) needs to be rectified in clause 49 (of Sebi's Listing agreement)," ICSI said.

The Companies Bill 2009, which was reintroduced in the Lok Sabha in August this year, defines independent director, as a "non-executive director of the company, other than a nominee director" and ICSI says the same change could be replicated in the Clause 49 of Sebi's listing Agreement that deals with corporate governance compliance.

The suggestions hold significance as the government is to introduce a voluntary corporate governance code for industry by the end of this month.

The MCA has also invited suggestions from industry representatives on the guidelines.

Earlier, a committee headed by Naresh Chandra also suggested that nominee directors be excluded from the pool of independent directors.

The apex body for company secretaries ICSI has also said that the maximum tenure for independent directors should be six year and the maximum number of listed companies in which an individual can serve as a director be restricted to seven.

"The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors," ICSI said.

It further said that there should be a clear demarcation of the roles and responsibilities of the Chairman of the Board and that of the Managing Director or CEO.

"The roles of Chairman and CEO should be separated to promote balance of power," ICSI said.


First Published: Thursday, December 10, 2009, 00:28

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