Corporate Governance Emerging Trends- Indian perspective

This post is the third in a series of guest-authored commentary pieces spotlighting data and insights from the Board Diversity Gaps report, produced in partnership between Diligent Institute, the Institute of Directors, India, and 21 other organizations committed to promoting boardroom diversity around the world.

In our first blog, we looked at the premium 50 companies on the nifty 50 and identified some of their corporate governance practices in areas of diversity. Considering that NIFTY 50 companies comprise India’s premier benchmark index, one would assume these companies would be at the forefront of corporate governance practices in India, as well as, early adopters of international best practices, indicative of emerging trends in the Indian corporate governance landscape. In some cases, we have found this to be the case. 

 Many of these firms have separated their Chair and CEO positions; appointed Non-Executive Board Chairs; some have also appointed Lead Independent Directors; adopted & adapted to voluntary reporting systems, years before they have even been mandated, or came into effect.  Interestingly, in December 2021, the National Stock Exchange Limited (NSE) launched a progressive corporate governance initiative- ‘NSE Prime’, a voluntary code, for which companies willing to raise the bar on corporate governance, may sign up.   The voluntary code requires companies to adopt certain improved corporate governance practices, to achieve the ‘NSE Prime’ tag. While many have termed these as more ‘strict’ corporate governance norms, one may even consider them to be more progressive and one step ahead of legal requirements. 

For companies on the Nifty 50, some of the emerging trends for board diversity are expected to be: 

• Change in Board Sizes and Age 

Companies at the minimum regulatory threshold (6 board members) are expected to increase their board size by 1-2 numbers for strategic appointments, greater diversity, and specialization as companies look to transform and expand in the post-Covid world. Those with previously larger board sizes are expected to bring the number down for enhanced and coherent board processes, thought, and leadership. As the next generation of business leaders take over the reins, it is likely we will witness a relative ‘younger demographic’ in the boardroom. 

• More Non-Executive Board Chairs  

As Indian firms grow globally, they are more likely to adapt better and improved corporate governance best practices, even if the mandate has not been adopted under the Indian regulatory framework. Increasingly, Non-Executive Board Chairs are being appointed as stewards of boards, business, and governance leadership, with executive leadership (especially in family-owned enterprises), resting at the Vice-Chair position.

• Separation of Board Chair and Managing Director/ CEO Roles 

Although the Indian market regulator- SEBI has now changed listing requirements for companies listed on the Indian bourses for separation of these posts, from mandatory to voluntary (on February 15, 2022), globally competitive, large Indian companies are increasingly adopting this practice to secure good governance, with a view for sustained long-term, global growth of their businesses. However, this will be at a snail’s pace, considering many of the largest Indian business groups are family-owned. 

•  Greater Gender Diversity 

Large listed companies have been leading the movement to improve gender diversity in Indian boardrooms. Mid-size and smaller firms are expected to follow in their footsteps. In a recent research, Deloitte has found that India “witnessed an increase in the number of women taking up CEO roles,  4.7 percent female CEOs against 3.4 percent reported in 2018’. The report also found the ‘stretch factor’ in India has marginally increased from 1.22 (in 2018) to 1.30 (in 2021), and the “average tenure of women directors marginally increased from 5.0 years in 2018 to 5.1 years in 2021.” The global report highlighted, “nearly all countries have local organizations or governments committed to increasing the number of women serving on company boards. Although these joint efforts by the private and public sectors are geared towards achieving parity, the pace of collective progress needs to pick up.” 

 With more women rising in leadership roles, succession planning, stewardship, stakeholder pressures, and training, amongst others will be needed to ensure greater gender diversity. Indian boardrooms have woken up to the need for merit-based appointment of women directors to boardrooms. 

•  More Independent Directors (ID) in the Boardroom 

As boards look to add value to their composition, it is likely, more IDs be appointed, especially with domain leadership and experience, as per the strategic requirements of companies. From Sustainability, Emerging Technologies, and Digital Transformation, HR, and regulatory specialists will be new additions to the boardroom, as independent directors.  This is also likely to spin off a trend for new board committees such as ESG Committee, Digital Transformation/ Technology Committee, Committee of Independent Directors, Board Governance Committee (sometimes joined with the Nomination & Remuneration Committee, as seen on some NIFTY 50 companies).  As required by ‘NSE Prime’, it is also likely that Audit Committees be constituted completely by IDs only.  Appointment of Lead Independent Directors on more Boards is also a global practice, being adopted by Indian boards, and is likely to be a more common practice in the coming years.