The report has said that 14% (70 companies) were non-compliant with board composition norms. Out of these 70 companies, 55 companies were PSUs.
While Indian companies understand that they need to refresh their boards to meet the regulatory timelines, the pace of board refreshment continues to remain slow, Institutional Investor Advisory Services (IiAS) has said in its latest study on the board composition of Nifty 500 companies as on December 31, 2020.
The advisory firm has noted that a balance needs to be struck between board refreshment and board stability; yet Indian boards seem hesitant to let go of their tenured independent directors (IDs). “In this environment, though, the Tata Group has decided that none of its listed companies will have an independent director with a tenure in excess of 10 years – well ahead of the 2024 regulatory deadline. Corporate India needs more of such progressive thinking,” it has said.
Board composition in India is driven by regulations – depending upon the chairperson, boards may comprise one-third or half as independent directors. Globally though, the practice is to have at least half the board comprise independent directors, IiAS has said.
According to its findings, the total number of IDs have decreased in 2020 compared to 2019 and 2018. This reduction can mainly be attributed to the reduction in the number of IDs in PSU companies. The other reason for the decrease in IDs has been churn in the companies forming part of Nifty 500 over this period. The outgoing companies in the Nifty 500 in 2020 when compared to 2019 had 208 IDs on their boards while the incoming companies had 188 ID, whereas when compared to 2018, the outgoing companies in 2020 had 395 IDs on their boards while the incoming companies had 331 IDs.
The report has said that 14% (70 companies) were non-compliant with board composition norms. Out of these 70 companies, 55 companies were PSUs. “Board independence has long been a problem for PSUs. PSUs in the Nifty 500 companies, needed to appoint around 141 independent directors to their board to be in compliance with the listing guidelines,” IiAS has noted.
Commenting on the findings, Amit Tandon, managing director, IiAS, said, “Board composition is difficult to change; independent directors now have a tenure of five years, and most get re-appointed for a further five-year term. Further, regulations ‘grandfathered’ independent director tenure till 2014, suggesting that the pace of change will be slow. However, the companies need to work towards instituting balanced and more efficient boards with greater clarity on the role, skill mix and more effective checks and balances.”
With regard to women directors on boards, IiAs has noted that women form 17% of all board directorships of Nifty 500 compared to 6% in March 2014. It has said that despite 95% of the Nifty 500 companies having at least one woman director on board, women representation in executive positions remains low at 11%.
Around 21 companies out of the Nifty 500 companies had a female chairperson, despite the steadfast increase in women directorships over the years. Around 475 companies had at least one woman director on the board. Of the remaining 25 companies, two are institutionally controlled, two are promoter-run and the remaining 21 are PSUs.
Only 5 companies had women representation of 50% or more on their board.