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Industry body CII on Monday suggested putting in place “legal and procedural safeguards” related to the personal liability of independent directors, arguing that criminal prosecution should be initiated against them only in exceptional circumstances to keep the risks and rewards of the position proportionate. The Confederation of Indian Industry (CII) launched ‘Guidelines on Appointment of Independent Directors and Process of Board Evaluation’ and made several recommendations pertaining to various aspects.

“The whole idea of decriminalizing civil duties is essential to conserve faith in the institution of Independent Directors. There is need for the availability of indemnity and/or insurance that may be formalized through appropriate written agreements.

“While directors and officers (D&O) liability insurance is mandatory for the top 1,000 entities by market cap as per the SEBI LODR (Listing Obligations and Disclosure Requirements), it may be advisable for all listed entities (to start with) to consider this protection for their directors,” CII stated.

The CII guidelines called for 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.

On succession planning, the guidelines explain it may be seen as a continuing process of reviewing and identifying needs, rather than an episodic event or exercise.

“When thinking about Board succession there is a need to identify and prioritize the skills, experiences and other criteria that will be most valuable in both director and committee roles.

“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 industry body suggested.

Detailing the selection process for independent directors, the CII Guidelines detail phases like diagnosis and definition; director identification; candidate engagement and decision and implementation. Boards may focus on relevant domain knowledge and possess diverse combinations 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 (DEI) initiatives,” the chamber stated.

CII President R Dinesh cited that in the intricate thread of corporate governance, the appointment of Independent Directors and the meticulous process of board evaluation are elementary in leading an organization towards harmony, transparency, and sustained success.

“There has been a significant amount of shareholder activism on inclusion of role and responsibilities of Independent Directors especially in different set ups ranging from a large company to a small company to companies at different levels of maturity, conglomerates, new-age business ecosystem comprising unicorns and startups etc.

“There is an urgent need that the role, expectations, and responsibility of Independent Director to be defined clearly to avoid situations of conflict,” Dinesh emphasised.

  • Published On Feb 6, 2024 at 03:30 PM IST

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