Some of the current independent directors have been in their respective companies for more than a decade. PHOTO | FILE
Independent directors of listed firms will serve for a maximum of nine years following the introduction of a new code of conduct by the Capital Markets Authority (CMA).
Previously, such directors could serve for unlimited number of years as long as they received support of the shareholders.
On expiry of the nine years a director has to exit or be converted to a non-independent director, since a long tenure is seen as impairing objective oversight.
The regulator requires independent directors to constitute at least a third of the board, meaning companies will have to retire directors whose term expires or expand their board membership to continue accommodating them.
“Long tenure can impair independence. As a result, tenure of an independent board member is capped at nine years.
“The nine years can either be a consecutive service of nine years or a service of nine years with intervals,” reads part of the code of conduct gazetted last Friday.
Some of the current independent directors have been in their respective companies for more than a decade.
Independent director refers to a member of the board who does not have a material relationship with the company or its majority shareholders.
He/she also does not own any of the company’s shares and has not been employed by the company in the last three years.
The members should bring objective judgment to the board which avert risks arising from conflict of interest or undue influence by interested parties.
Chairperson of the powerful nomination committee, which vets new board members, is required to be an independent director.
Thus those who have served nine years cannot chair the committee because they have to exit or become non-independent directors.
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