The number of civil servants on the boards of large listed companies is at its lowest since new regulation tightening responsibilities of directors was introduced in 2013.
There are 466 Indian Administrative Service (IAS) officials who have a seat on the board. The number of civil servants, who are also independent directors, are fewer still at 346, also the lowest since 2013, shows data from corporate tracker primeinfobase.com. An independent director is one who is not connected to the promoter of the company. The share of independent directors as a percentage of total civil servants on company boards has also declined since 2013, based on avaiable information. Data on the independent status of all directors is not known, and there is a (single-digit) number for whom status is unclear for the years under since 2013. The proportion of independent directors among civil servants, where data is available, shows a decline from 77.6 per cent as of March 2013, to 74.2 per cent in March 2020.
The government rolled out the Companies Act in 2013. It placed higher liabilities on company directors over companies’ non-compliance with the law. The Ministry of Corporate Affairs recently clarified that entities should not face civil or criminal proceedings unless necessary, noted consultancy firm KPMG in a March 17 note on the ministry clarification. It said that independent directors and non-executive directors were being held at par with others, despite the fact that they may be at an information disadvantage.
“The circular seems to address this matter by casting a greater responsibility/obligation on the registrar to examine relevant information such as board agenda, minutes of the board meetings to ascertain participation of the directors, records of appointment and resignation of directors and copies of the annual returns or financial statements before proceeding against (independent and non-executive directors),” it said.
“At the time of serving notices to the company, during inquiry, inspection, investigation, or adjudication proceedings, necessary documents must be sought so as to ascertain the involvement of the concerned officers of the company....all care must be taken to ensure that civil or criminal proceedings are not unnecessarily initiated...” said the circular dated March 22.
Amit Tandon, founder and managing director of Institutional Investor Advisory Services India (IiAS), which advises on governance matters, said it could also be part of a larger shift away from generalists to specialists. Someone who has an in-depth understanding of a topic, for example human resources, would be more in demand than others who may not be able to claim authority in a similar manner on a single subject, he suggested.
“As business is getting more complex, you need people with domain expertise,” he said.
Directors had been wary of their associations with companies after a spate of accounting scandals, noted the chief executive officer of a domestic asset manager. There have been a number of such instances where auditors have resigned in recent years.
“People are very careful in terms of which board they want to (be a part of),” he said.