SEBI Proposes New Norms For Independent Director Appointment, Removal, Remuneration
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The Securities and Exchange Board of India (Sebi) on Monday proposed to revamp norms pertaining to appointment, removal and remuneration of independent directors (ID).
The regulator has proposed that independent directors' appointments and re-appointment shall be subject to the dual approval system firstly approval of shareholders and approval of majority of minority shareholders would mean those other than the promoter and promoter group.
If either of the requirements are not met, a new person will not be appointed and existing independent directors can't be removed and the company will either have to propose a new candidate or propose the same person after a cooling off period of 90 days with reasoning for proposing the same candidate. In case of removal, a second vote of all shareholders can be called after a cooling off period of 90 days but within a period of 120 days.
In regard to resignation of independent directors, the consultation paper proposed, If an independent director resigns from the board of a company stating reasons such as preoccupation, other commitments or personal reasons, there will be a mandatory cooling-off period of one year before the independent director can join another board.
Further, Sebi has proposed to tighten the process of selection of ID by the nomination and remuneration committee (NRC). The NRC will be tasked with evaluating the skills, knowledge and experience for shortlisting the candidates. Also, appointment of key managerial personnel (KMP) and employees of promoter group companies as ID would require more checks and balances.
Sebi has also sought public feedback on remuneration of IDs, particularly on the debate of linking their payouts to profits. The concern with this approach - that profit or performance linked commission may encourage short-termism and lead to conflicts.
The regulator has said this concern can be addressed by permitting ESOPs to IDs with a long vesting period.
SEBI said in its proposal, which is open for public consultation until 1 April. The proposal may be revised after SEBI receives public feedback, and there is no clear timeline on its implementation.
The regulator has proposed that independent directors' appointments and re-appointment shall be subject to the dual approval system firstly approval of shareholders and approval of majority of minority shareholders would mean those other than the promoter and promoter group.
If either of the requirements are not met, a new person will not be appointed and existing independent directors can't be removed and the company will either have to propose a new candidate or propose the same person after a cooling off period of 90 days with reasoning for proposing the same candidate. In case of removal, a second vote of all shareholders can be called after a cooling off period of 90 days but within a period of 120 days.
In regard to resignation of independent directors, the consultation paper proposed, If an independent director resigns from the board of a company stating reasons such as preoccupation, other commitments or personal reasons, there will be a mandatory cooling-off period of one year before the independent director can join another board.
Further, Sebi has proposed to tighten the process of selection of ID by the nomination and remuneration committee (NRC). The NRC will be tasked with evaluating the skills, knowledge and experience for shortlisting the candidates. Also, appointment of key managerial personnel (KMP) and employees of promoter group companies as ID would require more checks and balances.
Sebi has also sought public feedback on remuneration of IDs, particularly on the debate of linking their payouts to profits. The concern with this approach - that profit or performance linked commission may encourage short-termism and lead to conflicts.
The regulator has said this concern can be addressed by permitting ESOPs to IDs with a long vesting period.
SEBI said in its proposal, which is open for public consultation until 1 April. The proposal may be revised after SEBI receives public feedback, and there is no clear timeline on its implementation.
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