Independent Directors may soon have to take a test before appointment

New Delhi: In an attempt to overhaul the country's corporate governance system, the Narendra Modi government is soon going to bring in a system where independent directors on company boards will have to clear an exam before they can be appointed to the post. Injeti Srinivas, Secretary, Ministry of Corporate Affairs, said, "We want to demolish the myth that independent directors don't have any fiduciary duty. We want to propagate corporate literacy to make them aware of their duties, roles and responsibilities."

Srinivas also said that the government aims to roll out the new oversight programme in the next two months, and added that the idea behind bringing in the exam is to ensure that officials are not able to plead ignorance if they are hauled up for a lack of oversight.

The exam will be an online assessment of basics

The top bureaucrat added that the exam will be an online assessment and will involve questions pertaining to the basics of Indian company law, ethics, and capital market norms among other areas. Aspiring directors will have a limited time frame which they have to clear the exam, but they will be allowed an unlimited number of attempts.

Experienced directors who have been on boards for several years, on the other hand, will be exempt from taking the exam. However, they will have to register themselves on a database that the government is preparing. The database is going to be a one-stop platform where companies looking for independent directors can meet those willing to serve, Srinivas said.

The backdrop

The news comes as the government seeks a five-year ban on Deloitte Haskins & Sells, saying that they failed to inquire into IL&FS loans and warn of mounting risks. In the aftermath of such crises, a burn question has emerged in India who will watch the watchdogs, which has in the past charged a jeweller with defrauding a public sector lender of around Rs 12,000 crores, witnessed non-bank financiers send its financial system to the brink of a crisis and seen billionaires topple into bankruptcy. In the aftermath, experts have been of the opinion that these signs of trouble should have been flagged by the companies' independent directors even before they manifested.

In India, an independent director on the board of a company is an overseer outside the influence of the firm whose main responsibility is to safeguard the interests of minority shareholders.