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: The deadline for corporate India to populate at least half of their boardroom with independent directors passed in January 2007. For unlisted companies, the percentage required is one-third, under company law. The stock market regulator, Securities & Exchange Board of India (Sebi), had said it would penalise listed companies that failed to do so before the audited results for the March quarter were out. But despite such an order, the regulator has not penalised any company so far. The reasons are not because of any weakness of Sebi. It is simply because the basket of people available to become independent directors on boards of companies is very small. Since there is a limit on the number of companies that one can become a board member of, the problem is compounded further.
Into this story, the inexplicable lookout notice served by the Hyderabad police on Nimesh Kampani has pushed one of the biggest reforms in corporate governance in India back several years. The case, as this paper has highlighted, involved Nagarjuna Finance Ltd, based in Hyderabad, which was allegedly unable to pay back deposits collected from the public about ten years ago. In a bizarre turn of events, the city police, while arresting the CEO and one of its executive directors, have also served a lookout notice on Mr Kampani. His fault? He served on the board as an independent director. So, even though he had quit a year before the default, the police in its wisdom decided there was a fit case ten years later to raid Mr Kampani’s residence in Mumbai on New Year’s eve and proclaim him an absconder. If persons of the calibre of Mr Kampani are hounded as criminals for something with which they are plainly not responsible, the chances of any eminent persons agreeing to sit on company boards are zero. Yet, as has been argued by this newspaper, the biggest safety net for upholding shareholder rights is the institution of independent directors. Segments of Indian business have long been a prey to evils like filling up boardrooms with relatives of the management. This often allowed them to get away, despite misuse of shareholder wealth. Independent directors are, therefore, starting to play a very critical role. Just one look at the Satyam story in the same city will make it clear how critical that role is.
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