The Confederation of Indian Industry (CII) has come up with a set of guidelines on the roles and responsibilities of independent directors, besides aspects such as their appointments and succession planning.

These guidelines — CII Guidelines on Appointment of Independent Directors and Process of Board Evaluation — would help imbibe diversity, equity and inclusion (DEI); highlight the need for indemnity and insurance and fair compensation of independent directors. 

The importance of board evaluations has been increasingly recognised as a key element for building good corporate governance. 

The guidelines also focus on bringing out the effectiveness of the board through an efficient evaluation process.

R Dinesh, President, CII & Chairman, TVS Supply Chain Solution Ltd, said in the intricate thread of corporate governance, the appointment of independent directors, and the meticulous process of board evaluation is elementary in leading an organisation towards harmony, transparency, and sustained success. 

Sanjiv Bajaj, Chairman, CII Corporate Governance Council, said he believes that Independent Directors have a socio-strategic role, namely, role of a conscience keeper of the corporate governance representing image of a business in consonance with the role of driving business strategies. 

Given this role, it is important that compensation for Independent Directors is commensurate with their heightened responsibilities, strategic inputs and risk bearing, while running the risk of facing criminal liability actions, Bajaj added.

Chandrajit Banerjee, Director-General, said the compilation comprises 10 guidelines for companies, which are considered best practices that ought to be possible to comply with in true letter and spirit. 

How to get truly independent directors 

The guidelines are forward-looking for members to chart the times to come, thereby, enabling ease of doing business, he added.

The CII Guidelines suggest that there is a need to create legal and procedural safeguards relating to personal liability of independent directors, and initiation of prosecution itself should be an exception rather than the rule, to keep risk and rewards of being an independent director proportionate. 

The whole idea of decriminalising civil duties is essential to conserve faith in the institution of independent directors. There is need for availability of indemnity and/ or insurance that may be formalised through appropriate written agreements. 

While directors and officers (D&O)‘s liability insurance is mandatory for the Top 1000 entities by market cap as per the SEBI LODR, it may be advisable for all listed entities (to start with) to consider this protection for their directors, CII has suggested.

The CII Guidelines describe how the role and responsibilities of independent directors has evolved over the years and may now also encapsulate crisis and risk management, internal controls, standards of conduct and sustainability, in addition to traditional roles in strategy, finance and audit.

SUCCESSION PLANNING

On succession planning, the CII Guidelines explain it may be seen as a continuing process of reviewing and identifying needs, rather than an episodic event or exercise. The company strategy may tabulate the range of skills most needed around the boardroom table. 

When thinking about board succession there is a need to identify and prioritise the skills, experiences and other criteria that will be valuable in both director and committee roles. 

An ideal mix of expertise will ensure that the board can fulfil its responsibility to advise and oversee company affairs. Succession planning for independent directors is recommended, where his / her tenure is likely to end within the next 12 months, CII Guidelines has said.

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