Massive Increase in Mandates for Independent Director Searches as 10-Year Term Limit Approaches

The corporate world is bracing for a significant reshuffle in the boardrooms as the maximum ten-year term limit for independent directors approaches its end. This scenario has triggered a surge in mandates for independent director searches, creating a wealth of opportunities and challenges for businesses, executive search firms, and prospective candidates alike.

Independent Director Retirement Surge: The Data

According to Native, a leading executive search firm, over 800 independent directors in listed companies with a market cap above ₹5,000 crore will have to retire by March 2024. The firm's estimate also reveals potential vacancies for independent director roles across all listed companies, including those below ₹5,000 crore market cap, to be more than 1,200. These figures clearly indicate that the upcoming fiscal year will be action-packed for director posts. As such, top search companies report a doubling in the number of independent directors looking to build a new portfolio of company boards as their terms near expiration. The Indian Companies Act 2013 stipulates a maximum of two 5-year terms for independent directors, hence the imminent wave of retirements.

Reshuffling the Boardrooms: The Demand and Supply Sides

A Doubling in Director Search Mandates

"We see a massive demand for independent directors across listed companies in the light of the compulsory retirement due in 2023," says Varun Sidana, Partner Corporate Functions Hiring at Native. "We see almost a doubling of non-executive director searches, aided by an enhanced interest both from demand and supply side this year."

Suresh Raina, partner at global leadership advisory firm Heidrick & Struggles, echoes this sentiment, observing the increased readiness of boards in thinking about reconstitution ahead of the imminent churn.

Candidates: Top-Tier and Selective

Raina further notes that they are already in touch with top candidates, who are "always highly selective." This situation underlines the criticality of identifying the right fit for these positions, a process often facilitated by executive search and leadership advisory firms.

The Evolving Indian Boardroom: New Skills and Approaches

High Demand for ESG, Digital, and Technology Skills

A report on corporate governance by Russell Reynolds Associates indicates that skills in Environmental, Social & Governance (ESG), digital and technology, and a deep understanding of regulations are high in demand in Indian boardrooms. The report, based on engagement with directors, clients, and others in the governance ecosystem, suggests a shift in boardroom dynamics, especially as retired PSU bankers are also in high demand.

Forward-Looking Board Composition

Pankaj Arora, Managing Director of Russell Reynolds Associates, adds that companies are adopting a more strategic, forward-looking approach to board composition. This approach aims to create balanced boards that can cater to future business needs, as opposed to the like-for-like replacement strategy previously employed.

However, there remains the challenge of a potentially insufficient talent pool. As Sidana of Native points out, "The current availability of high-quality independent director talent within other listed firms would not suffice the demand anticipated, and the overall pool would need fresh entrants."

Wider Sourcing and New Entrants: The Way Forward

Widening the Sourcing Pool

In an attempt to address this challenge, companies and search firms are widening their sourcing pool. "We find boards are more open to considering the executive director pool, that have exposure to and understanding of board dynamics but may have not served as independent director before," Raina observes.

Fresh Entrants Needed

The impending independent director retirement wave underlines the need for fresh entrants in the talent pool, a challenge that will significantly shape the upcoming fiscal year and beyond.

In conclusion, while this massive change presents potential hurdles, it also opens up opportunities for strategic board reconstitution that could shape the future of Indian businesses. The evolving demands and skills in boardrooms are an indication of the industry's progress and its readiness to adapt to changing landscapes.