The Hindu Business Line : Lawyers may find it tough to get on co boards

The new corporate governance norms would prohibit partners of legal firms who have had "material association" with a company to take a seat on the board of the same corporate entity.

The revised Clause 49 of the Listing Agreement which sets out corporate governance norms stipulates that an `independent director' would include a non-executive director of the company who is not a partner or an executive during the preceding three years of a legal firm that has a `material association' with the company.

This according to India Inc has totally reversed a well-established independent position occupied by directors from legal profession on the boards of companies. "This is not in the interests of either the companies or their shareholders," they argued.

Directors from legal profession have guided the board of directors and their chairpersons by assisting them in understanding the scope and import of relevant legal provisions and thereby ensuring adequate compliance of law, corporate honchos said.

Concurring with this view, Mr Lalit Bhasin, reputed Supreme Court lawyer and President of Society of Indian Law Firm (SILF), said, "This is a retrograde step, which will discourage good independent directors. Besides, those professionals who are already on boards of companies will also be affected."

Talking to Business Line, he pointed out that, "The term material association of the legal firm with the company is not defined." According to the Federation of Indian Chambers of Commerce and Industry it will be very difficult to define this term as the same will differ from company to company depending on its size, the number and importance of the cases, the time taken in the courts or tribunals till final disposal of the cases.

"It does not serve any purpose to define material association in monetary term or as percentage expenses. The payment to a legal firm will depend on how critical and important is the nature of cases handled. The quantity of fees paid cannot thus form the basis for material association," a chamber official said.

The chamber has, in fact, urged the Securities & Exchange Board of India to delete the same from the revised Clause 49, as it will damage the cause of corporate governance and investor protection.

Directors from legal profession were throughout rated as by far the best suited to be independent directors. Therefore, excluding such directors from independent directors, whether through material association with the company or otherwise, is not in public interest particularly at a time when companies find it difficult to get enlightened independent directors, legal experts stressed.

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