Ministry moots separating CEO, chairman’s role

In a bid to improve corporate governance, the corporate affairs ministry has suggested voluntary guidelines to be adopted by private or public firms in areas such as directorship, responsibilities, audit and mechanism of whistle blowing.

The ministry has suggested that offices and roles of chairman and chief executive officer should be separated to promote balance of power. Also, the board should have a balanced combination of executive and non-executive directors.

According to corporate affairs minister Salman Khurshid, independent directorships for an individual should be limited to seven firms.

“In case individual is a managing director or whole time director in a public company, the maximum number of companies in which such an individual can serve as a non-executive director or independent director should be restricted to seven,” the minister said.

DNA had on September 14 reported that the ministry was looking at reducing the present limit of 15 directorships for an individual.

About 25 individuals hold more than 10 directorships in listed Indian companies.

“The ministry of corporate affairs feels that the existing set of corporate governance framework needs to be taken to a higher level through a set of voluntary guidelines that ensure greater level of accountability to shareholders,” the statement read.

The ministry has also suggested that an individual may not remain an independent director in a company for more than six years.

Also, in order to safeguard shareholders’ investment and the company’s assets, the board should, at least annually, conduct a review of the effectiveness of the company’s internal control and should report the same to shareholders. 

The audit committee, the ministry suggested, should have enabling powers for independent back office support and other resources from the company. Also, the audit partner should be rotated once every three years and the audit firm once every five years.

On the issue of whistle blowing, the ministry feels companies should ensure the institution of a mechanism for employees to report concerns about unethical behaviour, actual or suspected fraud, or violation of ethics, and/or code of conduct. It has suggested adequate safeguards against victimisation of employees who avail of the mechanism.