With massive numbers of scams and scandals, Narendra Modi-led government is preparing to start ‘corporate literacy’ program, under which Independent company directors on boards will soon have to clear an exam before they can be appointed,
Announced by the top bureaucrat in charge of corporate affairs, Injeti Srinivas, the corporate literacy step aims to overhaul India’s corporate governance system that in last few year has allowed number of frauds including the infamous IL&FS Scam and the recently uncovered $5.75 Mn Tax Scam by Manpasand Beverages Ltd (MBL), a Gujarat-based beverage company backed by SAIF Partners, which hold 25% stake in the firm.
“We want to demolish the myth that independent directors don’t have any fiduciary duty,” Srinivas said in an interview in New Delhi on June 6. “We want to propagate corporate literacy to make them aware of their duties, roles and responsibilities.”
The exam will be an online assessment covering the basics of Indian company law, ethics, and capital market norms among other areas, Srinivas said.
Srinivas further affirmed that the aspirants will be allowed unlimited attempts albeit in a stipulated (fixed) time frame within which they have to pass the test.
Experienced directors who have already been on boards for several years will be exempt from the test but will have to register themselves on a database the government is preparing. This compilation will be a one-stop platform where companies looking for independent directors can meet those willing to serve, Srinivas said.
The existing law mandates that every company listed in India has to have independent directors accounting for at least a third of its board strength. The main responsibility of independent directors is to act as overseers outside the influence of the company he in the boards of. This “impartial supervision” safeguards the interests of minority shareholders.
The government is also looking to ban auditor Deloitte Haskins & Sells for five years after it did not flag risks from the activities carried out by fraud-hit NBFC IL&FS.