Board Structure and Size: The Impact of Changes to Clause 49 in India

Abstract

Changes to Clause 49 of the Listing Agreement by the Securities Exchange Board of India (SEBI) in 2005, with particular reference to the minimum number of non-executive directors, brought mixed reactions. However, Indian firms generally embraced the changes with the expectation that it sent positive signals to investors about Indian business and corporate governance (Businessline, 2006:13). While the role of independent directors has been well documented particularly in the area of agency theory, there are differing opinions regarding the role of a firm. The ways in which contractual arrangements are introduced, monitored and evaluated are indirectly related to the mode of corporate governance adopted by the firm. Consequently, there has been much attention on the separation of ownership and control including the role of boards.