Sebi Amends Rules To Empower Independent Directors
- ByStartupStory | August 9, 2021
Capital markets regulator Sebi has overhauled the rules pertaining to the appointment, removal and remuneration of independent directors to ensure their independence and effectiveness. The new rules will be applicable from January 1, 2022, the Securities and Exchange Board of India (Sebi) said in a notification. Under the new rules, appointment, re-appointment and removal of independent directors in a listed company will be done through a special resolution of shareholders. In the special resolution, the number of votes in favour of the resolution should be at least three times those against the resolution. This will ensure that independent directors are not removed or appointed at the whims and fancies of the promoters. The listed entity will have to ensure that approval of shareholders for appointment of a person on the board of directors is taken at the next general meeting or within a time period of three months from the date of appointment, whichever is earlier, Sebi said in a notification dated August 3.
Besides, new regulations require that the process of selecting independent directors should be transparent and fully elaborated. The panel selecting the directors should also disclose the skills required for appointment as an independent director and how a particular candidate fits into that skill set. ‘For every appointment of an independent director, the nomination and remuneration committee shall evaluate the balance of skills, knowledge and experience on the board and on the basis of such evaluation, prepare a description of the role and capabilities required of an independent director,’ Sebi said.
The person recommended to the board for appointment as an independent director will have the capabilities identified in such description. For the purpose of identifying suitable candidates, the committee can use the services of an external agency, if required; consider candidates from a wide range of backgrounds, having due regard to diversity; and consider the time commitments of the candidates. In case an independent director resigns, the company must disclose the entire resignation letter along with a list of her/his present directorships and membership in board committees.
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