Appointment and removal of independent directors made easier

Appointment and removal of independent directors made easier

The Securities and Exchange Board of India (Sebi) in a notification on Tuesday introduced a new option for the appointment and removal of independent directors from boards of companies – a move that is seen by experts as more flexible as well as providing some protection to them.

Under this, the appointment and removal of independent directors could be done by way of two parameters – the threshold for ordinary resolution and threshold for majority of minority shareholders. Currently, the appointment, re-appointment or removal of independent directors is made through a special resolution. For a special resolution to be passed, 75% of ‘yes’ votes are needed from a company’s board.

The same threshold will also be applicable for removal of an independent director appointed under this alternate mechanism. Sebi has amended LODR (Listing Obligations and Disclosure Requirements) rules, according to a notification made public by the regulator on Tuesday.

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Said JN Gupta, managing director, Stakeholder Empowerment Services (SES): “The change is a relevant one because it provides some sort of protection to independent directors, especially in companies dominated by promoters. If an independent director goes against the promoter’s wishes in these companies, he might be unable to get reappointed.”

“In case a special resolution for the appointment of an independent director fails to get the requisite majority of votes, but the votes cast in favour of the resolution exceed the votes cast against the resolution, and the votes cast by the public shareholders in favour of the resolution exceed the votes cast against the resolution, then the appointment of such an independent director shall be deemed to have been made,” Sebi said.

(With inputs from PTI)