On Monday, the market regulator SEBI put out a discussion paper for reviewing the norms of appointments on listed company boards. SEBI supports giving more say to minority shareholders in the process of the appointment of independent directors. Independent directors are essentially the protectors of minority and public shareholder rights. Their main responsibility is to see that the company improves its corporate credibility and governance standards.

Currently, SEBI has suggested the approval of independent directors to be done by a simple majority of minority shareholders, i.e. 75% or more minority shareholder votes among those present in the meeting. SEBI related some jurisdictions, like Israel, have provisions for the appointment of independent directors by minority shareholders. In the UK, for premium listed companies having a controlling shareholder, a dual voting structure has been adopted, where the appointment of independent directors must be approved both by the shareholders as a whole as well as the independent shareholders. If either of the resolutions fails, and the company still wants to propose the person as an independent director, it can put the matter to the second vote of all shareholders including the controlling shareholder. Now SEBI wants the appointment and re-appointment of independent directors subjected to the dual approval of shareholders and the majority of minority shareholders be taken through a single voting process.

SEBI told that if the approval thresholds are not met then a second vote for that person can be done after a cooling-off period of 90 days but within 120 days. Such approvals for appointment/re-appointment should be through a special resolution and the notice to shareholders should have to include reasons for proposing the same person despite not getting approval of the shareholders in the first vote. SEBI also wants the approval of minority shareholders by a simple majority for the removal of independent directors. Currently, they can be removed by the simple majority in the first term, and through a special resolution in the second, after giving them a reasonable opportunity to get heard. This process provides the promoters with significant influence, and SEBI wants to give minority shareholders a say in this.