What Sebi giving a free hand to directors means

Source: Livemint

What is the News?

Securities and Exchange Board of India(SEBI) has tightened the rules for appointing and removing independent directors. This move aims at strengthening the corporate governance framework.

Click Here to Read New rules for Independent Directors

Who is an Independent Director?

• An independent director is a non-executive director who does not have any kind of stake in the firm.
• Purpose: They are expected to help strengthen corporate governance. Further, they bring an element of objectivity and safeguard the interests of shareholders, especially minority shareholders.
• Under the Companies Act, 2013, all listed companies are required to have at least a third of their board made of independent experts from varying fields.
• Section 149(1) of the Act mandates that out of all independent directors, at least one independent director must be a woman.

Role of Independent Directors: The independent directors bring in transparency and accountability in corporate governance by:

• Ensuring a balance of conflicting interests of all stakeholders and bring in an objective view in the evaluation of management and board performance.
• Playing the role of a watchdog by bringing in independent judgment regarding strategy, risk management, resources, key appointments and standards of conduct.
• By chairing the audit and compensation committee to ensure transparency in fixing compensation and perks for top executives and in preparing independent reports.

Are the new norms of independent directors applicable to PSUs?

• Yes, the rules for Public Sector Undertakings(PSUs) are the same as for private listed firms.
• At PSUs, the administrative ministry recommends the nominee/ independent director. These recommendations are cleared by the appointments committee chaired by the prime minister.