INSTITUTIONAL EYE Independent Director Rotation: Losing institutional memory 13 May, 2024

The Companies Act 2013 introduced the tenure rule for independent directors a decade ago. Under this, independent directors will have a 10-year maximum term on the board of a company; this ten-year count was from 1 April 2014. Consequently, long tenured directors are now retiring, and will continue to do so over the next 18-months and new directors are being appointed in their place.

In a series of pieces, we look at how companies of the NIFTY 500 that are yet to manage the transition. Our analysis shows that almost 198 of the NIFTY 500 companies have seen a churn of their independent directors over the next 18 months. More importantly, in some companies, the rotation of independent directors will be disruptive, leading to a loss of institutional memory and possibly an increased reliance on the promoter group during board deliberations.

This is the third piece of our series on Independent Director rotations. In the first piece (November 2023), we reviewed the headline numbers for the NSE 500 companies and the impending board refresh. In the second piece published last week, we called out some practices that are compliant with the letter of the regulations, but we believe not their spirit. We believe such practices defeat the purpose of mandating rotation of independent directors. Both these papers are available on our website.

Read our blog here

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  • Independent Directors
  • NIFTY 500

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