Wipro runs the risk of falling foul of clause 49 of the Sebi Listing Agreement on Tuesday if it reappoints an independent director, who has completed nine years, on the board at its annual general meeting.
The $6.9-billion company has a strong corporate governance record and yet a shortage of qualified personnel who can serve as independent directors has put it in a spot.
Among the 12 items on the agenda the shareholders of Wipro will debate is a proposal to reappoint BC Prabhakar, a practising lawyer to the board of directors. The snag is Prabhakar has served on the board since 1997. Annexure 1D under the Non-Mandatory Requirements of the clause says an independent directors ?may have a tenure not exceeding, in the aggregate, a period of nine years, on the Board of a company?.
Despite it being only a guidance note, listed companies try to be on the right side of it. Most corporate governance norms for India Inc are basically that?norms ? but since all big companies have a global footprint, they are keen to ensure compliance.
When contacted by FE, Wipro said it could only comment after it announced its first-quarter earnings on Wednesday.
While Wipro is the most high-profile among the companies that have come up against this problem, others too are likely to face this issue soon. IDFC, for instance, is expected to vote on a similar resolution later this month to reappoint two independent directors, eminent corporate lawyer Shardul Shroff and former J&K Bank chairman SH Khan, to its board.
An advocacy venture in the sector, InGovern, said those serving as independent director for a long period could compromise their role as watchdogs for minority shareholder interest. The venture has recommended that institutional investors should vote against the reappointments, an unlikely situation.
The Companies Bill, to be placed in Parliament, is likely to make the nine-year rule mandatory. Experts say this will make independent directors? appointment transparent.
While shareholder activists have been raising the issue of long-serving independent directors for some time now as many Indian companies have long-serving directors, company executives say there aren?t enough people who could become independent directors in India.
?India has 5,000 listed companies and each company would require seven to eight independent directors. Finding the right independent director ? people who are ethical and can bring in valuable inputs ? is rare,? a senior executive with a leading Bangalore based firm said.
The executive who did not wish to be identified added that there is no global standard on the tenure of independent directors and that Sebi has not mandated a tenure because of the availability issue in India.
But differing from him, InGovern managing director Shriram Subramanian told FE that nine years for independent directors is an international best practice.
?Beyond that, they could become too close to the promoters, sort of ?yes men?. Independent directors should represent the interests of minority shareholders and that of non-promoter shareholders?.