Bolstering Director Independence in Controlled Companies in India

Abstract

A vast majority of listed companies in India is “Controlled” by dominant shareholders acting also as the executive, directly or indirectly. Most of the legislative and regulatory requirements, however, are based on “best practices” evolved in countries like the United States where corporate ownership is “dispersed” with no identifiable controlling shareholder in management. In this paper, based on my submissions to a Committee appointed in June 2017 by the capital market regulator, Securities and Exchange Board of India (SEBI), I have proposed for consideration some structural changes in the manner of appointment, functioning, and removal of independent directors on listed company boards aimed at further enabling such directors to exercise their independence without undue inhibition in the interest of non-controlling shareholders. Principally, the recommendations seek restraints on controlling shareholders’ voting power in approving appointment and removal of independent directors (and independent auditors), with the rest of the shareholders being exclusively empowered to approve them.