Companies have to ensure that at least 50 per cent of their board comprises non-executive directors, according to amendments in clause 49 of the Listing Agreement issued by the Securities and Exchange Board of India.

Companies proposing to list will have to comply with the new norms with immediate effect, while listed companies have to comply with the amended requirements by March 31, 2005.

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The amendments stipulate that if the chairman of the board is a non-executive director, at least one-third of the board should consist of independent directors, and in case the chairman is an executive director, at least half of the board should comprise independent directors.

Independent or non-executive directors should not have any material pecuniary relationship or transactions with the company, its promoters, directors, senior management or the holding company, subsidiaries and associates, the amendments stipulate.

Additionally, such independent directors should not be related to the promoters or persons occupying management positions at the board level or at one level below the board, has not been an executive of the company in the preceding three financial years, and should not have been a partner or an executive during the preceding three years, of any professional body associated with the company.

The amended regulations have also specified that the board of the company has to meet at least four times in a year, with a maximum gap of three months between two meetings.

A director should not be a member in more than 10 committees or act as chairman of more than five committees across all public limited companies in which he is a director, the amendments say.

Further, it should be a mandatory annual requirement for every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place.

The board of directors should also periodically review compliance reports of all laws applicable to the company, prepared by the company as well as steps taken by the company to rectify instances of non-compliance, the amendments state.

Corporates have to set up an independent audit committee made up of a minimum of three directors. Two-thirds of the members of the audit committee shall be independent directors, the revised listing agreement says.

All members of the audit committee have to be financially literate and at least one member shall have accounting or related financial management expertise.

The chairman of the audit committee will be an independent director and has to be present at annual general meetings to answer shareholder queries.