Aug 3, 2012

Problem of 'Highly Boarded Directors' causing Corporate Governance lapses in India

A study conducted by two IIMs says that a small group of "highly boarded directors" (directors who are on the boards of five or more companies) controls 66 per cent of the total market capitalisation of NSE-listed companies, as of 2010.
This raises concerns about the efficacy of the recently introduced corporate governance norms, which are aimed at increasing the diversity in the director pool, it says.
The study -- 'Coping with Corporate Cholesterol, Board Interlocks and their Impact on Corporate Governance - The Indian Experience' -- was conducted by IIM Ahmedabad director Samir Barua, along with a visiting professor and two other assistant professors of IIM Bangalore.
Such concentration of economic power in the hands of a few is not desirable in the larger interest of society, the researchers concluded
For three years, from 2001 to 2003, the market capitalisation of highly boarded companies (HBCs, which have directors that are on multiple boards) ranged from 33 per cent to 43 per cent. This peaked at 70 per cent in 2007 and stood at 66 per cent in 2010, according to the study.
When the listed companies were mandated by the government to have a higher percentage of non-aligned or independent directors on the boards, the expectation was that there would be a widening of the pool of independent directors.
But researchers have found the mandate has tended to increase multiple directorships and concentration of economic power, because in many cases, such additional independent director vacancies have been filled by incumbent directors from other companies.
The population of highly boarded directors has increased from 40 in 2001 to 71 in 2010. The total number of directors of NSE-100 companies is 1,104, while 284 companies are HBCs.
The highly boarded directors constitute about 6 per cent of the overall director population of NSE-100 companies, the study says.
These trends suggest that despite the well-intentioned regulatory reforms, the extent of over-boarding among directors has not come down and there is actually a marginal increase, the researchers have concluded.
It is more than clear that we need more directors, and an overhaul in direction, concepts regulation regarding directorship is a much needed thing of the hour.


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