Less than a week before the Clause 49 amendment to the listing agreement comes into effect, mandating the induction of specified percentages of independent directors on to company boards, managements are sacrificing their year-end holidays to rush and meet this new regulatory requirement. On the Bombay Stock Exchange’s corporate announcements pages, there is a sudden burst of activity on the appointment of independent directors. Some companies may miss the deadline, necessitating another extension of the last date, but the objective will have been substantially achieved by month-end, since almost all the large firms would have complied.
While the Clause 49 deadline is a domestic one, it is part of the global trend of strengthening corporate governance, after the Enron scandal and the US response in the form of the Sarbanes-Oxley Act. Sebi’s Clause 49 draws on this Act in some areas, and covers several corporate governance issues, including the appointment of independent directors. From January 1, 2006, non-executive directors should make up at least 50 per cent of a company’s board. If the chairman is a non-executive director, a third of the board members should be independent directors, and if the chairman is an executive director, the requirement goes up to 50 per cent. Sebi stipulates that these directors cannot be relatives of the promoters or senior management, or have any financial relationship with the company or its management.
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