Noteworthy requirements of the regulations, among others, include decreasing the limit of permissible directorship in listed companies of a director from seven to five.
The statement also said the regulations aims at strengthening presence and role of independent directors; therefore, the board of directors are mandated to have at least two or one-thirds of the number of directors, whichever is higher, as independent directors.
The independent directors would be required to file a declaration, confirming that statutory criteria for independence, has been duly complied with.
One of the significant requirements of the act is to prescribe female directors, which has been incorporated in the regulations by mandating one female director within one year of the notification of regulations or reconstitution of board, whichever is later.
This would strengthen gender balance on boards. Moreover, in order to encourage inclusion of competent female directorship, companies are required to train at least one female executive under the directors’ training programme, the statement said.
The Companies Act gives extensive powers, responsibilities and duties to directors. In addition, the regulations provides additional responsibilities, ie, overall review of risk, code of conduct, internal controls, whistle blowing mechanism, sustainable business practices, grievance handling and maintaining record of significant policies.
The directors’ have been mandated to attend general meetings and participate in framing and considering significant policies, it said.
To promote accountability, formal and effective mechanism for annual evaluation of the board’s own performance and its committees has been made mandatory. Formal policy and procedures to determine directors’ remuneration are also mandatory and companies are encouraged to post key features of same on their websites. The regulations have also added stringent quorum requirements for board meetings in case of conflict of interests.
The effectiveness of the audit and HR committees has been strengthened by mandating chair of the two committees to be an independent director.
Further, the audit committee is to include at least one member who is “financially literate” defined as a person who is a member of a recognised body of professional accountants or has a postgraduate degree in finance from a university or equivalent institution.
The formation of two separate committees, ie, nomination and risk committees are encouraged and their terms of references have also been recommended. It is foreseen that in addition to banks, other companies also embrace role of risk committee in assessing and reviewing risk.
The provision pertaining to directors’ training programme have been revised in a manner that the data bank of trained individuals should be strengthened.