Mandates for independent director searches rise 2X as maximum allowed term of 10 year comes to an end

As the current fiscal year marks the end of the maximum ten-year term for many non-executive directors, mandates for independent director searches have more than doubled, according to leading executive search and leadership advisory firms.

This fiscal year is set to be an action-filled period for director posts as top search companies are also witnessing a doubling of the number of independent directors reaching out to them looking to build a new portfolio of company boards as they head to the end of their terms.
The Indian Companies Act 2013 allows a maximum of two 5-year terms each for independent directors.


According to data of 680 listed companies above market cap of Rs 5000 crore analysed by executive search firm Native, the number of independent directors who will compulsorily need to retire by March 2024 is more than 800. Potential vacancies for independent directors across listed companies, including firms below Rs 5000 crore market cap, is more than 1200, according to Native’s estimate.

“We see a massive demand for independent directors across listed companies in the light of the compulsory retirement due in 2023 as per companies act provisions,” said Varun Sidana, partner corporate functions hiring, Native, which is currently running several independent board roles across large corporates.

“We see almost a doubling of non-executive director searches, aided by an enhanced interest both from demand and supply side this year,” said Suresh Raina, partner at global leadership advisory firm Heidrick & Struggles. “On the one hand, boards have already started thinking about reconstitution, with the imminent churn ahead,” said Raina.

“On the supply side, we are already in touch with the top candidates, who are always highly selective,” he said.

Skills in Environmental Social & Governance (ESG), digital and technology are high in demand at Indian boardrooms, according to a report on corporate governance by Russell Reynolds Associates shared with ET. The report is based on engagement with individual directors, clients, and others in the governance ecosystem. Besides, people with deep understanding of regulations such as retired PSU bankers are also in high demand, said experts.

“Companies are no longer looking for a default mode of a like-for-like replacement and are adopting a more strategic and forward-looking approach to board composition that creates a more balanced board to cater to future business needs,” said Pankaj Arora, managing director, Russell Reynolds Associates.

According to the Russell Reynolds’ board report, the role of nomination and remuneration committees (NRCs) will continue to increase as human capital aspects are becoming increasingly critical both for boards (composition, effectiveness, capacity building, executive director compensation) and their companies (succession, talent, and compensation strategy, culture).

However, experts said the talent pool continues to be a challenge for companies looking to fill in the vacancies.

“The current availability of high-quality independent director talent within other listed firms would not suffice the demand anticipated, and the overall pool would need fresh entrants,” said Sidana of Native.
Raina of Heidrick said: “In an attempt to widen the sourcing pool, in addition to MDs of companies, we find boards are more open to considering the executive director pool, that have exposure to and understanding of dynamics of board working, but may have not served as independent director before.”