India Inc boards bigger, more independent than 5 years ago

ET Intelligence Group: Boards of Indian companies are slightly bigger and more independent than they were five years ago. However, they lag the global trend on independence.The median number of directors on boards of 87 of the BSE 100 Index companies stood at 11, with 53.3% members being independent, data from Bloomberg show.Five years ago, the median number of directors stood at ten, with 50% members being independent. Ten was found to be the most common board size for India Inc, with 50% being the most common proportion of independent directors on board.India Inc is in line with America Inc on the board size but not on independence. As per the Spencer Stuart 2018 S&P 500 Board Index, the average S&P 500 board had 10.8 directors, with 85% of the boards being independent. The range of board size is wider in India — from four to 22 — whereas S&P 500 boards range in size from five to 18 members. In 2018-19, L&T had the biggest board with 22 members, half of whom are independent. The company had a 14-member board in 2014-15.72286408 Incidentally, five of the top ten companies having the biggest boards are public sector undertakings (PSUs), with power generation company NTPC having the biggest board with 18 members.Most PSUs have seen a significant increase in the board size, but not necessarily accompanied with a corresponding increase in their independence. While the Companies Act 2013 provides for a maximum limit of 15 directors on board of a company, a company may appoint a higher number by passing a special resolution.Incidentally, for majority of the companies the size of the board doesn’t have much relation to its independence. While L&T, with its biggest board, has half of its members as independent directors, Eicher Motors, with the smallest board size of four directors in FY19 had three-fourths of its board independent.The Companies Act mandates one-third of the board to be independent. Both Dr Reddy’s Labs and Maruti Suzuki have 12 members each on their respective boards, but the former has the most independent board with 83% of its directors being independent and the latter (along with Petronet LNG) has the least independent board with one-third (the mandatory limit) of its members being independent.Sun Pharmaceutical Industries figures among the list of BSE100 companies with the smallest boards, with eight directors, as well as being among the least independent one, with 37.5% independent directors.Analysts are divided on whether the board size and independence influence a company’s performance. While the agency theory (directors as agents of shareholders on the board) and the resource dependency theory (directors providing direct or indirect access to resources) suggest a positive relation between board size and firm’s performance, the stewardship theory (directors act as stewards maximising shareholder interest) hints at a negative relation between the two and favours a smaller board. The optimum size of a board has been pegged at 8-10 directors.

from Economic Times https://ift.tt/2XXEj7x