Mumbai: Market regulator Securities and Exchange Board of India (SEBI) said on Friday that it would be making changes to Clause 49 of the listing agreement before the end of this year.
Clause 49 of the listing agreement states that if the chairman of a company’s board is a non-executive director, at least one third of the board should comprise independent directors; and if he is an executive director, at least half of the board should comprise independent directors.
Flaws in the system — four members of the same family acting as independent directors on the same board — a loophole that exists because of the patriarchal definition of 'relative', will be fixed in the second phase of Clause 49.
In the course of this year, some of the issues relating to independent directors will be addressed while the process would get over by 2007, said SEBI Chairman M Damodaran.
"Independent directors have to be independent of promoters and majority of shareholders along with the other parameters," the SEBI Chairman said.
He addressed a gathering at the Bombay Stock Exchange at the launch of ‘Directors Database', a database of directors of companies listed at BSE.
The market regulator is looking at directors, who are ‘fiercely independent’ in their perspective and management, and not merely fulfilling the parameters of formal education, Damodaran said.
Independent directors selected on the basis of set parameters would lead to better disclosures, said Damodaran.
"We are moving towards more disclosures, fast disclosures, better disclosures and error-free disclosures," he added.
The directors' database provides single-point access to information on the directors on board of all listed companies on BSE like age, qualifications and experience.
This database presently has information about 908 companies out of 4,126 companies, which are required to comply with Clause 49.
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