SEBI Explores New Framework for Director Competency
The Securities and Exchange Board of India (SEBI) is moving to strengthen the capabilities of independent directors by proposing a collaborative capacity-building network. SEBI Chairman Tuhin Kanta Pandey revealed the initiative during a session hosted by the Bharat Chamber of Commerce in New Delhi on Saturday.
The proposed network intends to bring together key institutions, professional bodies, academic institutions, and industry chambers. The primary objective is to facilitate greater interaction among these stakeholders to upgrade the overall standard and effectiveness of independent directors. Pandey indicated that a consultative process to formalize this network will be launched soon.
Balancing Oversight and Independence
A central theme of Pandey’s address was the need to strike a delicate balance between regulatory accountability and operational independence. He emphasized that SEBI is conscious of the potential for regulatory overreach and aims to ensure that oversight remains proportionate.
"We should have proportionate oversight on the independent directors and not an excessive burden from the point of view of regulators," Pandey stated. He clarified that the existing regulatory framework and corporate governance codes already provide significant safeguards. Consequently, SEBI intends to allow directors to function without undue regulatory pressure unless there is manifest malfeasance or serious dereliction of duties.
"Unless and until the malfeasance is manifest, unless and until you have serious dereliction of duties, we should really allow that independence to operate," he added.
Evolving Role of Independent Directors
Pandey stressed that the position of an independent director should not be viewed as a part-time engagement or a "cushy assignment." With the increasing complexity of corporate governance, the role must extend beyond mere regulatory compliance to actively safeguarding shareholder interests and driving business performance.
He highlighted that independence must yield positive outcomes, particularly in emerging areas such as cybersecurity, artificial intelligence, sustainability, and human resource transformation. These domains require greater board-level competence and oversight. Pandey noted that shareholders, including minority investors, rely on the long-term growth of businesses, which is contingent on effective board performance.
Streamlining Compliance
On the regulatory front, SEBI is looking to reduce the compliance burden on companies and directors. This involves streamlining requirements, removing overlaps, and leveraging technology to enhance efficiency. However, Pandey made it clear that certain safeguards remain non-negotiable, especially where investor interests are at risk.
He specifically cited related-party transactions (RPTs) as an area requiring close regulatory attention, as improper handling could adversely affect investors. The regulator aims to evolve an appropriate balance between oversight and independence through sustained dialogue with companies and institutions.