Retirement of Independent Directors after 6 years

It seems that the Institute of Company Secretaries of India (ICSI) is doing a good job to better corporate governance in India Inc. In an news article in Times of India on Dec 21, 2009, it was noted that to ensure better corporate governance, ICSI was seeking a more effective role by independent directors. ICSI has recommended a limited six-year term for them and suggested that nominees of financial institutions should not be treated as independent since they had their own interests to protect. These recommendations are in light of the recent Satyam fraud.

ICSI is also proposing changes to Clause 49 to support these recommendation.

In our view, such changes will go a long way for better corporate governance. The objective of independent directors is defeated if the appointment term is not restricted. These directors get close to the management and start to think along their lines. This by itself defeats the purpose of bring in “New blood” to think differently and creatively in overseeing the organisation.

Replacement of these independent directors at regular intervals ensures that there is nothing fishy “brewing” that will cause a sudden shock to the Corporate world.

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