Familiarisation programme for Independent Directors

Independent Directors (IDs) are the custodians of Corporate Governance. They are expected to contribute towards the effective and sustainable functioning of the company in a manner consistent with law, regulations and good practices associated with governance. They also ensure that compliance with law and regulations is both in letter and in spirit.

To be effective in discharging their role and responsibility, it is important for them to be updated with the operations of the company, the industry and the sector in which they operate, as well as in changes in laws and regulations that impact the company. To aid this, both law and regulations have mandated that each company has to provide familiarisation programmes for their Directors. Schedule IV of the Companies Act, 2013 states that it is the duty of IDs to undertake appropriate induction, and regularly update and refresh their skills, knowledge and familiarity with the company. Regulation 25(7) of SEBI LODR Regulations, 2015, states that the listed entity is required to familiarise its IDs through various programmes, which may inter alia include nature of the industry in which the company operates, the business model of the company, and the roles, rights, and responsibilities of IDs. Details of such programmes have also to be published on the websites of the companies.

While organising familiarisation programme for Directors, and not only for IDs, the management of the company should keep in mind that emphasis should be given to topics that are important and relevant for Board members. These could include emerging topics (such as those relating to cyber security or ESG), changes in laws and regulations and the impact of those on the company, and changes happening in the economy, industry or sector. These programmes could also include visits to plants/ factories of the company or its regional offices. These programmes should not be reduced to discussions on Board agenda items or business presentations. These should also not include interactions with Key Managerial Personnel (KMPs)/ Senior Management Personnel (SMPs), since interaction with them should be ongoing, and should not be reduced to a programme.

Getting an external speaker to address the Board is another practice that very few companies have been following at present. Since these programmes are intended to increase the knowledge of Directors, and to help them gain a more rounded view of the topics being discussed, it would be a good idea to get an external speaker to present his/her views. Also, given the importance of these programmes, companies should not aim at having only one programme in a year.

In a fast-changing world, any person who stays only within the comfort zone of his/her past knowledge, is a sub-optimal presence in his/her environment. This is most true in the case of Directors who cannot have the luxury of a disconnect with the latest laws, regulations and the like, as also with the continuing changes in the ecosystem of the company and the economy.