Will Independent Directors Pass the Common Proficiency Test as Proposed by MCA?
The recent notification issued by ministry of corporate affairs
, making it mandatory for independent directors to get listed with a central database, and to qualify under proficiency test, makes a global exception. Sure enough, there is need for sensitisation on things like duties or liabilities of directors, accountability and responsibility by virtue of being a member of the company board, but that cannot be a stuff for an online examination or proficiency self-assessment test.
There are training workshops and skill building courses for non-executive directors run all over the world, but that a director should mandatorily sign for one such test and qualify under the same with 60%, seems exceptional.
The intent of MCA was to demolish the myth that directors do not have fiduciary duty and to propagate corporate literacy to make them aware of their duties, roles and responsibilities, says a report from Business Today
There are several fallacies from which this notion suffers:
a.First, the question of testing a person for any “proficiency” arises only when a director is expected to have such common proficiency. Needless to emphasise, directors are appointed on boards of companies to fit the requirements of each case, which are, admittedly different in each case depending on the core skills/expertise/competencies identified by the board of directors as required in the context of its business(es) and sector(s). It does not seem that there are any such common skillsets, other than purely mundane and generic, which are expected from independent directors.
b.Second, assuming there are directors who have passed such proficiency test, and those who have failed, will it be easy to say that the latter, despite their professional erudition, specialist skills or capabilities, are not less appropriate to be on corporate boards than the former?
c.The contents of the common proficiency test, viz., company law, securities law and basic accountancy, seem to be eminently suited to corporate professionals.
Corporate boards have to have diverse skills – technical, behavioural, industrial, and so on. How does a common proficiency test assess the capability, for example, of a person, who has technical competence on the line of business that the company is engaged in?
d. The idea of the board report reporting their directors’ performance1 in the so-called proficiency test is even more bizarre.
Section 150 of Companies Act, 2013 provided the option to companies to select IDs from the databank. It was never mandatory for an independent director to be registered with the databank. The idea of centralising the database and mandating every independent director to register with the database transgresses the provisions of section 150, which is non-mandatory. Every existing independent director is required to confirm about having enrolled with the databank along with the declaration of independence submitted to the board under Section 149 (7) from time to time.
The amendments become effective from 1 December 2019. There is certainly a need for India Inc to represent to MCA to reconsider suitability of such proficiency self-assessment test.
(CS Vinita Nair is Partner at Vinod Kothari & Co)