The boardroom conundrum.

Byline: Dilawar Hussain

The corporate heads and shareholders are embroiled in a fiery debate over the composition of the board of directors of a listed company. The selection and appointment of independent directors, the determination of fit and proper criteria, the mouth-watering meeting fees and fiduciary duties of men who have no direct interest in the performance of companies are some of the uncomfortable questions. There also are the lingering issues of appointment of female directors on the board and allowing a member from amongst small shareholders to occupy a seat in the board rooms.

Section 154 (d) of the Companies Act 2017 stipulates the number of directors in private, unlisted and listed companies, by virtue of which a company listed on the stock exchange 'shall have not less than seven directors'. The law identifies matters that render a person ineligible to become a director which range from disqualification due to an unsound mind to a convict involving moral turpitude. Provision 161 of the Companies Act states that a director shall hold office for three years. A person can hold the office of a director in not more than seven companies.

In addition to the executive directors who run the day-to-day affairs of the companies, every listed company is required by law to appoint two or one-third of the members on the board as ''independent directors'. The act defines an independent director as a person 'who can reasonably be perceived as being able to exercise independent business judgement without being subservient to any form of conflict of interest'.

The fee for attending meetings now runs into hundreds of thousands for a single sitting against the pittance that used to be paid

Section 166 of the Companies Act mentions the maintenance of a databank of independent directors, but the responsibility of exercising due diligence before selecting a person from the databank lies with the company that makes such an appointment. The concept of a databank is not unique to the country but prevalent in the developed world.

The Institute of Directors in the United Kingdom maintains a database with a pool of 100 to 150 prospective independent directors. In July 2018, the Pakistan Institute of Corporate GoverAnance (PICG) announced that the databank of independent directors maintained by it had become operational. But for all that a company secretary, when queried, was not sure if independent directors on his company board were selected from the...