Impact of stricter SEBI norms for independent directors

The Securities and Exchange Board of India (SEBI) is the statutory regulatory body under the jurisdiction of the Ministry of Finance, Government of India for securities and commodity market in India. On 29th June the SEBI board permitted amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, provisions pertaining to independent directors.

Independent directors are those who do not have any material connections to the company or who are not financially connected to the company. The main goal of appointing independent board members to a company is the preservation and maintenance of the corporate administration framework by its members who protect the interests of promoters and other stakeholders, including minority or small shareholders.

Some of the major changes in the norms for independent directors are:

  • A special resolution for appointment/reappointment or removal of independent directors which must be approved by 75% of the shareholders, rather than a simple majority in the previous 50 percent majority. Such consent should be obtained at the next meeting of the General Assembly or within three months of the appointment.
  • The nomination and remuneration committee guides and advises the board with respect to appointment or removal and the amount of remuneration to be paid to directors, key personnel and senior management. The power of independent directors on this committee increased, at least two-thirds of its total members should be independent directors whereas earlier it was the minimum 50 percent.
  • Similarly, the composition of the audit committee that reviews and monitors financial statements which now requires two-thirds of the members to be independent directors, earlier only 50 percent was allowed.
  • SEBI had observed independent directors would resign and join the same company as an executive director which would compromise the impartial nature of an independent director knowing that they will get a bigger role in the company after resigning. Hence, it is compulsory now to disclose an entire resignation letter of the independent director. There should be a one-year cooling-off period before an independent director who resigns can become a whole-time director.
  • It is mandatory to have a three-year cooling-off period for the appointment of key managerial personnel and their relatives or employees of promoter group companies as independent directors. SEBI has also agreed to make a reference to the Ministry of Corporate Affairs for an amendment in the Companies Act, 2013, which will allow independent directors to receive stock options instead of profit-linked commission.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

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