Recent analysis by Ingovern Research Services, reported by this newspaper on Wednesday, shows once again the governance rot in India’s companies. Nineteen per cent of the directors, both executive and independent, in top companies attend fewer than 75 per cent of the board meetings. In blue-chip companies like Maruti Suzuki, Ashok Leyland, Exide Industries and United Phosphorus, more than half the directors have an attendance record of less than 75 per cent — although directors can now attend through video link or telephone.
This absenteeism can be explained by the large number of board positions held by most independent directors. Ingovern found that nine per cent of the independent directors are on the boards of more than 10 companies. Clause 49 of the listing agreement with the Securities and Exchange Board of India, or Sebi, says that a company must hold at least four board meetings in a year; on an average, companies hold up to seven meetings. If a director is on 10 boards, he may have up to 70 meetings to attend in a year — almost one meeting every fifth day. Many directors perhaps find it difficult to fit in so many meetings into their schedule. Even if these meetings are spread out through the year, it just doesn’t give the jet-setting director enough time to prepare himself for a meaningful discussion. The new Companies Bill talks of capping the directorships for an individual at 20, of which not more than 10 could be of listed companies. This, however, is not likely to solve the problem.
Sebi, the market regulator, is also aware of the problem. It had mandated that at least half the board of listed companies with an executive chairman should be independent directors; the figure is a third for companies with a non-executive chairman. The presence of independent directors, it was hoped, would keep unscrupulous promoters from running riot with the company. But that didn’t help. Though the clause had come into effect on December 31, 2005, it didn’t prevent the Satyam scam. Ramalinga Raju confessed to inflating the accounts of Satyam Computers with impunity over several years, though the company had several big names on its board. The ugly truth is that independent directors are rarely independent. Many of them are happy to toe the promoter’s line; in return, their job and the handsome fee that comes with it stay protected. True, shareholders have the right to throw out non-performing directors at their annual general meetings when it is time to re-elect the board, but seldom has this right been exercised. Ingovern has recommended that shareholders should vote against directors who attend less than 75 per cent of the board meetings. That it doesn’t happen, despite all relevant information being available in the annual report, shows the poor state of shareholder activism in India.