Online self-assessment skills test for independent directors from December

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All independent directors will soon have to pass an “online skills self-assessment test” before being appointed to company boards, according to an amendment to the companies law notified by the Ministry of Commercial Affairs on Tuesday. (MCA). This rule will come into effect from December.

According to the notification from MCA, the Indian Institute of Business Affairs (IICA) in Manesar, Harayana, will conduct this review. It will also create and maintain a database with the names, addresses and qualifications of persons eligible to be appointed independent directors of companies.

Company boards will have to disclose the results of these tests in their annual reports. The government inserted a new clause in the Companies (Accounts) Rules 2014, sub-rule 5; it will require companies to file such a declaration.

Lawyers and industry observers, however, were skeptical of the usefulness of these tests.

“When there is a shortage of independent directors, tests like this will certainly not help the cause and create an additional challenge for a board of directors to find the right fit. The bigger question remains: can a test really determine a person’s skills? Said Ankit Singhi, Partner, Corporate Professionals.

The current law requires all listed companies to have one third of their directors as independent directors. Their role is to ensure the protection of the interests of minority shareholders and to act as monitors outside the influence of the company.

Recent business scams have put pressure on business leaders who the government says have not detected any signs of a problem.

Data indicates that the resignation rate of independent directors from boards of listed companies has increased significantly compared to previous years.

A total of 606 independent directors resigned from the boards of directors of companies listed on the National Stock Exchange in 2018. By comparison, 412 independent directors resigned between January 1 and July 22 of this year.

“Independent directors perform functions essential to good corporate governance and having qualified and honest independent directors on boards is crucial for the development of our capital markets. However, a review of the accountability framework governing these directors indicates that the liability risks they face appear disproportionate to their duties, ”said a recent report from the Vidhi Center for Legal Policy.

The report also states that although company law seeks to limit the liability of independent and non-executive directors by providing for certain safety zones designed specifically for them, they only come to their aid after an investigation or proceeding. judicial process has been brought against them.

MCA notification

  • Manesar-based Indian Institute of Corporate Affairs to conduct review
  • He will create and maintain a database with the names, addresses and qualifications of persons eligible to be appointed independent directors for companies.
  • Company boards will have to disclose the results of these tests in their annual reports.

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