NEW DELHI: The Central government’s move to cap the remuneration of independent directors to ensure better governance has not gone down too well with India Inc, which has termed the move “regressive” and has requested the government to scrap it.
A recent proposal by an expert committee has recommended a cap of 25 per cent of independent directors’ gross income from the remuneration given by a group of companies. It has also added that the fee paid to an independent director for his services other than those given to the board by a company should be capped at 10 per cent of his gross annual income to ensure his independence.
However, the Confederation of Indian Industries (CII) has urged the government not to cap remunerations of independent directors under the amendments to the Companies Act, 2013.
“Any cap would be regressive to the current mechanism prescribed under the Companies Act, 2013 and SEBI regulations. Obtaining income details of independent directors would be difficult as directors may not be willing to share the income information. This is so especially in the light of Data Privacy Laws,” it said.
It said independent directors also contribute to shareholder value creation through strategy evaluation, risk management, governance and control. “Caps on remuneration may discourage him from fulfilling this role. In fact, such an approach carries the distinct risk of converting independent directors into auditors, thereby leading to conflict and dissension in Board processes,” it said.
However, the government is serious about the cap. “It was the high remuneration which kept independent directors from raising governance issues in IL&FS. The role of an independent director is not a favour, but a responsibility. There must be a cap to ensure better corporate governance,” a senior official from the Ministry of Corporate Affairs told TMS.