While Indian providers comprehend that they need to have to refresh their boards to meet the regulatory timelines, the pace of board refreshment continues to stay slow, Institutional Investor Advisory Services (IiAS) has mentioned in its newest study on the board composition of Nifty 500 providers as on December 31, 2020.
The advisory firm has noted that a balance requires to be struck in between board refreshment and board stability but Indian boards appear hesitant to let go of their tenured independent directors (IDs). “In this environment, though, the Tata Group has decided that none of its listed companies will have an independent director with a tenure in excess of 10 years – well ahead of the 2024 regulatory deadline. Corporate India needs more of such progressive thinking,” it has mentioned.
Board composition in India is driven by regulations – based upon the chairperson, boards could comprise one-third or half as independent directors. Globally although, the practice is to have at least half the board comprise independent directors, IiAS has mentioned.
According to its findings, the total quantity of IDs have decreased in 2020 compared to 2019 and 2018. This reduction can mostly be attributed to the reduction in the quantity of IDs in PSU providers. The other purpose for the lower in IDs has been churn in the providers forming aspect of Nifty 500 more than this period. The outgoing providers in the Nifty 500 in 2020 when compared to 2019 had 208 IDs on their boards even though the incoming providers had 188 ID, whereas when compared to 2018, the outgoing providers in 2020 had 395 IDs on their boards even though the incoming providers had 331 IDs.
The report has mentioned that 14% (70 providers) have been non-compliant with board composition norms. Out of these 70 providers, 55 providers have been PSUs. “Board independence has long been a problem for PSUs. PSUs in the Nifty 500 companies, needed to appoint around 141 independent directors to their board to be in compliance with the listing guidelines,” IiAS has noted.
Commenting on the findings, Amit Tandon, managing director, IiAS, mentioned, “Board composition is difficult to change; independent directors now have a tenure of five years, and most get re-appointed for a further five-year term. Further, regulations ‘grandfathered’ independent director tenure till 2014, suggesting that the pace of change will be slow. However, the companies need to work towards instituting balanced and more efficient boards with greater clarity on the role, skill mix and more effective checks and balances.”
With regard to ladies directors on boards, IiAs has noted that ladies kind 17% of all board directorships of Nifty 500 compared to 6% in March 2014. It has mentioned that regardless of 95% of the Nifty 500 providers getting at least one lady director on board, ladies representation in executive positions remains low at 11%.
Around 21 providers out of the Nifty 500 providers had a female chairperson, regardless of the steadfast boost in ladies directorships more than the years. Around 475 providers had at least one lady director on the board. Of the remaining 25 providers, two are institutionally controlled, two are promoter-run and the remaining 21 are PSUs.
Only 5 providers had ladies representation of 50% or more on their board.