SCRAP EXAMS FOR INDEPENDENT DIRECTORS – COVID-19 COULD BE THE EXCUSE

Speaking of unnecessary hoops we make professionals jump through, and getting back to the theme of this blog, lets talk directors’ exams. That’s right. In November 2019, India’s Ministry of Corporate Affairs introduced a new eligibility requirement for independent directors – they had to register themselves in a data bank and also within a year of registration, write an exam and score at least 60%. Failure to write the exam and score at least 60% would result in the director being struck off the data bank, thus becoming ineligible to serve as an independent director. The exam is to cover “companies law, securities law, basic accountancy and such other areas relevant to the functioning of an individual acting as an independent director”.

With the government announcing a slew of rule-relaxations for companies to help deal with the Covid-19 situation, it is time this pointless requirement of an exam is thrown out or at least temporarily relaxed. The PHD Chamber of Commerce and Industry (an industry body engaged in research and advocacy) has already called for an extension of both the registration and exam requirements for independent directors.

Coronavirus crisis or not, this requirement was an unnecessary imposition with little upside. An exam is not likely to make directors exercise independent judgement. The Rules also exempt people who have already served as independent directors in a large public company for at least 10 years. This would mean that the performance of all such experienced independent directors has been exemplary – which is clearly not true.

Such unnecessary hoops would discourage many qualified people from serving as independent directors. Around 170 directors were reported to have resigned from the boards of listed companies in early 2020. While not all of these resignations can be blamed on the registration and exam requirements, it provides some indication of how the new rules have been received.

The coronavirus crisis should give the government an excuse to do away with these requirements altogether.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s