SEBI Chief Questions Role Of Govt Nominees On Boards

MUMBAI: The SEBI chairman M Damodaran has suggested raising the bar with regard to representatives on company boards. Addressing a CII conference on corporate governance in Mumbai on Wednesday he questioned the role of government nominees on the board of state-owned companies.

“Do people, who represent a certain constituent, continue to represent them when they get into the boardroom? Sometimes it appears that they seem to forget the source from which they have come from,” said the SEBI chief.

The market regulator had in the recent past, for the first time taken to task 20 companies including five state-owned ones for not adhering to the Clause 49 provision. Clause 49 defines certain corporate governance rules for listed companies including board composition. The SEBI chairman said, “We don’t need people who are there just to grace the board. Rather, we need to see how they add value to the board.” Several companies, in recent times, have roped in film stars and cricket personalities to be part of their boards. It is felt that these members added very little value to the company’s growth.

Terming boards as a centre stage for governance process, Mr Damodaran said it was important to retain good people on boards who could also add value to the functioning. To that extent he also suggested a cap on the number of boards a person can be a director. “If the director is expected to do justice to the company, especially if the company is in stress, it requires additional time and effort, which a person of several boards may not be able to do,” he said.
Further, Mr Damodaran called for more flexible corporate governance regulations to enable its implementation more effectively.

“While a minimum prescription of corporate governance is required, at the same time what needs to be found out is whether the current regulations are overtly prescriptive to the extent that it dampens the credibility and innovation on the board,” he said. The SEBI chief questioned whether an “overly prescriptive regime” had dampened innovation or whether stipulation of quarterly reporting made companies take a short term view.