The Securities and Exchange Board of India (SEBI) had constituted a committee on Corporate Governance under the chairmanship of Mr. Uday Kotak so as to overhaul the present corporate governance standards of the listed companies in the country. The Committee submitted its report on October 5, 2017 wherein it has recommended high standards of corporate governance for listed companies by addressing issues related to Independent Directors, improved disclosures pertaining to Related Party Transactions, auditing practices, investor’s concerns with respect to their voting and participation in general meetings, and other disclosure and transparency related issues.
There are robust evidence that companies that exhibit sound corporate governance generates greater returns as it ensures accountability, fairness and transparency in the Board of the Company.
Some of the major recommendations of the Committee are enumerated below:
- The Committee recommends that for a listed entity, a minimum of six directors should be required on the Board of Directors. Currently there is no such specific provision under the SEBI (LODR) Regulations.
- The listed entities may be required to have at least half its total number of directors as Independent Directors. The committee has also suggested that no alternate director may be permitted in place of an independent director, as this will lead to a situation where important decisions will have to be taken without independent directors when they will not be present in the Board Meeting.
- Every listed entity shall have at least one woman independent director on its Board of Directors. Presently, the Companies Act and the SEBI (LODR) Regulations, require at least one woman Director on the board of a listed entity.
- The listed entities with more than 40% public shareholding should separate the roles of Chairperson and MD/CEO with effect from April 1, 2020. The recommendation is made to bring more clarity on the respective roles.
- The Directors have to attend at least half the total board meetings held over two financial years on a rolling basis, if not his/her continuance on the Board shall be ratified by the shareholders at the next annual general meeting.
- The listed entities have to disclose competencies of its board members in the annual report for the financial year ending March 31, 2019.
- The Chairperson of a listed company shall be a non-executive director so as to ensure he is independent of the management.
- The Committee has also suggested for creation of a formal channel for sharing of information between promoters and the company.
- With regards to Related Party Transaction (RPT), the Committee has suggested half yearly disclosure of RPT’s on a consolidated basis, on the website of the listed entity and also to send a copy of the same to the stock exchanges else strict penalties shall be imposed.
- The secretarial audit shall be extended to all material unlisted Indian subsidiaries.
- The audit committees shall monitor the flow of funds to unlisted subsidiaries including established overseas. To this, the Ministry of Corporate Affairs has suggested in its letter to SEBI that by such steps although they are prescribing higher standards at the same time they are creating jurisdiction and trying to bring unlisted entities as well within its sweep.
- All the disclosures made by the listed entity on its website and submitted to the stock exchanges should be in searchable format that allows users to find relevant information easily.
Further the Ministry of Corporate Affairs (MCA) in its letter to SEBI has mentioned that it is aiming to lessen the regulatory burden, in pursuance of which it has also proposed the Companies Amendment Bill, 2017 and which is already passed in Lok Sabha, whereas SEBI by implementing these recommendations will increase the regulatory burden over the entities.