Indian business leaders, CEOs, headhunters, private equity firms, and Big Four firms are actively searching for or promoting candidates who will be suitable to replace outgoing directors and protect their own interests on company boards, as per the 2013 Companies Law that mandates independent director rotation. According to primeinfobase.com, 1,551 independent directors in 825 out of the total 2,123 companies listed on the NSE are set to complete a minimum of 10 years on April 1, 2024.
“India Inc. will witness a significant shortage of experienced and skilled independent directors next year,” said Berjis Desai, a veteran lawyer and board member of several companies. “There are about two dozen professionals who can truly add value to the boards, but the demand for experienced independent directors is much higher, leading to a major shake-up in many boards,” added Desai, who serves on the boards of Great Eastern Shipping, Man Infraconstruction, Jubilant Foodworks, and others.
While there will be a considerable number of director changes overall, individual companies are expected to handle only a few departures, usually 1 to 3 directors. This transition is expected to bring in a younger generation of directors and inject fresh perspectives into boardroom discussions.
“The change in leadership generally brings new and different perspectives to the boardroom. Long tenures on boards sometimes inhibit new thinking,” said Ketan Dalal, CEO of Katalyst and board member of Torrent Power, HDFC Life, and Zensar Technologies.
In India, corporate founders typically rely on personal connections and networks to select board members. However, they have become more careful in their selection process this time.
“It’s a difficult task to say no when the influential calls you personally. But the fact is that some large conglomerates do not appreciate dissenting directors. They claim to have strong governance and oversight mechanisms, so they do not see the need for significant input from independent directors. It is important to find boards that value deep interaction with directors,” said an independent director with decades of experience in boardrooms. “The risk-reward ratio is often skewed for independent directors as they bear significant legal and reputational risks, while their compensation and rewards are comparatively modest,” the director added.
In recent months, headhunters have been expediting meetings with candidates to find common ground and align expectations. They stand to benefit financially from the independent director rotation, charging up to INR 25-40 lakh per placed director. However, a board relationship offers additional advantages.
“When you hire one independent director, you get to evaluate ten others. These candidates often serve on multiple boards, and informal meetings, such as meals, provide an opportunity to know them better. So, the pool of potential candidates expands significantly, which is especially helpful when managing multiple assignments,” said R. Suresh, managing partner at Insist Consulting.
In the case of CEO searches, if the headhunter’s placed director is familiar with the firm and sits on the Nomination and Remuneration committee, they are more likely to endorse the candidate.
Interestingly, the Big Four firms have become highly active participants in the appointment of independent directors. Similar to the mandated audit rotation in 2017, teams in these firms are tracking the movements of independent directors, with partners and directors assigned the task of cultivating specific individuals or groups. They are also actively recommending potential candidates to companies. The reason behind this is that audits, consulting projects, and strategic advisory assignments require board approval, and having sympathetic board members always helps their case.
Ex-partners of the Big Four also represent a significant portion of leading company boards and often head important audit committees. Another round of audit rotation is scheduled for 2027. “The larger the professional services firm, the more it relies on the board for support. Period,” said a partner at a Big Four firm.
Private equity firms have also been active in the appointment of independent directors. They have been a major source of new mandates in recent years as they restructure boards in companies they acquire. Many of these investments are now in the late stages, and the firms are appointing independent directors with a track record of driving growth as part of their exit strategy planning.
Leading headhunters have noticed some interesting trends in the current mandates. “Large companies are seeking fresh perspectives on growth and are open to considering entrepreneurs from mid-size companies as potential new board members. In tech companies, there is a demand for global Indians with R&D experience. We are also witnessing significant cross-industry collaborations,” said Suresh.
Corporate governance experts point out that the compensation for independent directors has become a challenge as good candidates are now demanding higher remuneration due to an abundance of offers. Under SEBI’s Listing Obligations and Disclosure Requirements (LODR) regulations, independent directors can serve on the boards of up to seven listed companies. On average, a decent-sized company board assignment requires 10-15 days of work per year, with longer hours if the director heads a committee such as audit, remuneration, or governance.
