New Delhi: The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has urged Department of Company Affairs, stressing that definition of Independent Directors (IDs) need to be clearly spelt out so that they are uniform across all Statutes. According to ASSOHCAM, this will not only bring about uniformity but remove ambiguity in current scenario of Corporate Social Responsibilities (CSR).
In a representation sent to Department of Company Affairs by the ASSOCHAM President, Dr. Swati Piramal, the chamber has sought that mandatory corporate governance guidelines should be evolved to give IDs access to confidential records and audit information of companies concerned and their compensation package be prevented from being excessive so that IDs remain independent.
In addition, the chamber has also suggested that it should be mandatory in corporate governance guidelines so that IDs at the time of their exit from boards of corporate India assign reasons which should be thoroughly recorded in Form 32 for submission in the offices of Registrar of Companies (ROC).
Form 32 is a mandatory requirement which is filled in at the time of entry and exit of IDs from companies concerned but current practice is that at the time of at their exit no such recording is made. The suggested move, according to ASSOCHAM will bring about transparency about exit of IDs and will also set up a good precedent for better corporate governance.
ASSOCHAM Chief further added that mandatory CSR guidelines be laid out in which it should be clarified and recorded that IDs should have access to confidential and audit information of boards concerned so that accountability is entrusted on them and transparency relating to all board decisions is ensured and corporate governance is not questioned.
The current practice in corporate India is that IDs have limited role in decision making of the companies since majority of them have neither access to confidentiality and records of the companies and they simply endorse the board’s decision and can escape accountability and responsibilities in case the need arises.
Therefore the IDs should be provided with such information that will enable them to get an overview of the company, its products, present composition of board, its committees and significant development etc.
The ASSOCHAM has also recommended that IDs need to be motivated to perform and just giving them sitting fees may not be appropriate. Thus, for an effective role of IDs, it is required that they should be properly compensated by the company on the board they serve.
However, at the same time it should not be excessive as in some companies IDs are compensated with large amount which debars them to speak against promoters. At the same time the ASSOCHAM, has argued that IDs should be paid adequate compensation, depending upon the role played by them as member of the board or its committees and such compensation should be fixed amount and not directly linked to performance of the company.
Besides, the chamber has suggested that remuneration payable to them directly by the company or indirectly through its associates should not exceed 25 per cent of total income of concerned directors as disclosed by him in his IT return, excluding sitting fees in current or preceding two financial years. If such receipts exceed 25 per cent, then directors be deemed to be not independent.