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Occupation under fire
August, 17th 2006
Why not restrict the number of directorships to five? -------------------------------------------------------------------------------- Professionals well versed in nuances of business and business laws must be encouraged to become directors rather than encouragement being given to directorships as a profession. -------------------------------------------------------------------------------- Recently, the Securities and Exchange Board of India (SEBI) Chairman, Mr M. Damodaran, came down heavily on the practice on the part of some persons of bagging directorships of companies with zest normally associated with sportsmen collecting trophies. Fuelling this practice is the desire on the part of wannabe listed companies to flaunt the names of the rich and the famous, be they from the celluloid world or the cricket ground, with the kind of fervour normally associated with job seekers embellishing their bio-data. One too many The company law has to bear the blame in good measure for this malaise one can be a part-time director in as many as 15 public companies now. Earlier, the upper limit was 20 but Mr Ram Jethmalani brought it down to 15 during his stint as Law Minister. How can a person do justice to 15 companies except in a hand-washing spirit? Allowing a person to adorn the board of 15 companies is bound to dissipate his energies and dilute his worth exactly the way when a celebrity endorses a multitude of brands. If one cannot be a managing director of more than two companies, by the same token one also cannot be allowed to be a part-time director of more than, say, five companies. Flitting from one board room to another perfunctorily with an eye on the not-so-inconsiderable sitting fee may be good for the incumbent director but robs the company of services which a seasoned part-time director can and is supposed to provide. In an unguarded moment, cricketing legends Sunil Gavaskar and Sachin Tendulkar allowed themselves to be co-opted as part-time directors by two companies, which they had to shake off when wisdom dawned on them that the companies had cleverly used their names to garner funds. Even well-managed companies fill the boardroom in a cavalier fashion. The requirement under Clause 49 of the Listing Agreement on companies to ensure that as much as 50 per cent of the board comprises independent directors has served to heighten this drama. While independent directors cannot be the relatives of executive directors, there is no ban on relatives of independent directors adorning the boardrooms. So much so, the boardrooms now resemble a close-knit club more than ever before. Professionals well versed in the nuances of business and business laws must be encouraged to become directors rather than encouragement being given to directorships as a profession. A beginning can be made by restricting the number of directorships to five from the existing fifteen. Lack of interest The impression the world over is that independent directors are disinterested directors and, hence, impervious to temptations and blandishments. The unpalatable truth however is disinterest soon degenerates into lack of interest resulting in such directors being reduced to passengers at worst or ornaments at best. The fascination for independent directors, not only in our country but universally as well, is not matched by results on the ground. L'affaire Enron, for example, happened under the very nose of an audit committee that largely consisted of independent directors. The votaries of whole-time directors vouch for the wholesome contribution made by such directors vis--vis the part-time directors. In his fulminations against persons carrying on the profession of directorship, so to speak, Mr Damodaran hinted at some action to discourage this sad denouement. It would be interesting to see what he has got up his sleeve. S. Murlidharan (The author is a Delhi-based chartered accountant.)
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