In an important initiative towards building good corporate governance, the Confederation of Indian Industry (CII) has launched the “CII Guidelines on Appointment of Independent Directors and Process of Board Evaluation,” that have been ideated to serve as guidance on role and responsibilities of independent directors, aspects of appointment and succession planning, imbibing diversity, equity and inclusion; need for indemnity and insurance and compensation of independent directors. The importance of board evaluations has been increasingly recognized as a key element for building good corporate governance. The guidelines also focus on bringing out effectiveness of the Board through efficient evaluation process.
The 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 the traditional roles in strategy, finance and audit.
Detailing the selection process for independent directors, the guidelines detail phases like diagnosis and definition; director identification; candidate engagement and decision and implementation. Boards may focus on relevant domain knowledge as well possess diverse combination of knowledge, skills, experiences and backgrounds. Appointing directors from different backgrounds will also help in upping the social initiatives of the company including stakeholder engagement, human capital management and diversity, equity, & inclusion initiatives. This will help further support its ESG journey.
On succession planning, the guidelines suggest 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, the report highlights need to identify and prioritize the skills, experiences and other criteria that will be most valuable in both director and committee roles. It is suggested that an ideal mix of expertise will ensure that the board can fulfil its responsibility to advise and oversee the company affairs. Succession planning for independent directors is recommended where his/her tenure is likely to end within the next 12 months.
The CII guidelines suggests 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 decriminalizing 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 formalized through appropriate written agreements.
President, CII & Chairman TVS Supply Chain Solution R Dinesh feels that in the intricate thread of corporate governance, the appointment of independent directors and the meticulous process of board evaluation is elementary in leading an organization towards harmony, transparency, and sustained success. Sanjiv Bajaj, Chairman, CII Corporate Governance Council believes independent directors have a socio-strategic role viz. role of a conscience keeper of the corporate governance representing image of a business in consonance with the role of driving the 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.
According to Sanjeev Krishan, Chairman, PwC, corporates are now focusing on augmenting their Board with members who come from diverse backgrounds and with varied experience. There is an increasing reliance on the viewpoints of independent directors and majority of the corporates are now going back to the drawing board to lay down the key attributes required from an independent director and also setting up a continuous evaluation process for their directors in line with the long-term strategy and commitment.