Independent directors on quitting spree

Post Satyam, independent directors have become very choosy about the companies they associate with. Many independent directors of India Inc have quit boards in the past four months, citing reasons ranging from ill-health to work pressures.

PRS Oberoi stepped down from the board of Jet Airways, Prof Nirmalya Kumar quit the ACC board, Harsh Mariwala quit Mirc Electronics, Surinder Kapoor quit Greaves Cotton and Infosys co-founder NS Raghavan quit the board of Shobha Developers.

Leading economist Isher Judge Ahluwalia recently quit Berger Paints. Many promoters and other dignitaries, who sit on multiple boards, are also restricting their board engagements for fear of their reputations being tarnished or unnecessarily getting embroiled in controversies. “I have been on five boards of Indian firms in the past eight years. On January 1, 2009, I quit the ACC board and now, I am not on any Indian company board. I like to spend 4-5 years on a board to understand the company and the sector. Then I like to move on as there is not much learning left for me,” says Professor Nirmalya Kumar of London Business School.

According to the Bombay Stock Exchange (BSE) website, more than 500 directors have quit the BSE-listed company boards since January 1 this year. “This trend will not stabilise in the short term as people are worried about company culture. Independent directors usually leave if they are not satisfied with growth and performance of the company and are unable to make any contribution to it. They also leave if meetings held by companies are not transparent enough for them to have enough confidence in the company,” says Namrata Barua, ex- regional director-India for the Conference Board, a global think-tank on governance issues.

Experts, however, say that the exit of independent directors is a healthy sign. “The fact that many independent directors have stepped down is a good first step for building accountability,” said ICICI securities CEO Madhavi Puri Buch in an ET corporate governance panel discussion last week.

Even expats who have been a part of many Indian boards in the past few years have started exiting some of them. Mark F Dziaga quit the Hexaware board, Adrianus Bernardus Voorn quit Geetanjali Gems and Lip By Tan quit Mindtreee, to name a few. Headhunters say that finding expat independent directors for Indian boards is proving to be a difficult task, post the Satyam episode.

“Foreign directors are interested in taking the opportunity to steer Indian companies forward, but they would want full liability protection and insurance, which Indian companies are not willing to give,” explains Barua.

In a matter of months, the board positions which were considered as labels to be proudly displayed have become a liability and a cause of fear for many. Some companies are, however, slowly taking steps towards creating a new board culture. “Some well-managed companies have started having a clear outline for their ideal board constitution in terms of domain and skill requirements,” said Buch. It’s high time that many boards clean up their act.