MNCs oppose bigger role for independent directors

NEW DELHI: The Naresh Chandra Committee recommendations on corporate governance, which had called for greater role for independent directors on the company board, has struck a wrong cord with MNCs.
While the domestic industry has not opposed or criticised the recommendations, MNCs have made it clear that they are not happy with dilution of the parent company’s say in the board. In a meeting with the secretary of company affairs today, MNCs have raised their reservations which has called for at least 50% independent directors on the board. They are also in disagreement with the clause which seeks to redefine the status of a director as ‘dependent’ after a period of nine years in the board, even though the induction was as an independent director.
It is understood that the DCA is planning to include some points as rules rather than as part of the enactment to bring flexibility in case changes are required in those clauses.
KN Shenoy, VC of Volvo India and head of CII’s MNC Council, which met the DCA secretary today, told ET, “The members have expressed their concerns over the clause of majority presence of independent directors on the board.�
He explained that most MNCs prefer to hold majority stake in their subsidiaries abroad along with a majority say in the board as they fear the decision making process should not be hijacked by outsiders. “One of the suggestions that came out was to keep the post of managing director (MD) out of the classification of dependent directors as usually the post is held by some professional,� he said.
According to Mr Shenoy the industry has suggested that the enactment should not lead to a condition where there is overregulation which actually cannot be monitored, for example, in relation of one of the auditors in some indirect way to the company concerned, whether by way of holding some equity or otherwise.
A section of the multinationals also objected to the clause which specifies that a director will be deemed to be a ‘dependent’ director after nine years on the board even though he/she was inducted as an independent director.
One of the other important issue raised was the restriction on the service(s) being offered by auditors to the company.
It is learnt that MNCs feel the rule should be relaxed in some cases. They argued that for instance when there is valuation of a company for the purpose of mergers or acquisitions or even otherwise, it is far more easier and relevant to rope in an audit agency as they have greater awareness of the true value of the assets and future potential of the company concerned.
While the rotation of auditors was an issue, it is understood that there is a general consensus on the middle path suggested by the committee, wherein instead of statutory rotation of audit firms, compulsory rotation of the audit ‘partner’ every five years was put forth. The rotation of audit firms was a stickling point both within the auditing community as also the MNCs.
The council has also raised the issue of the overlapping of the functions of Sebi with that of DCA and has called for a review of the same.