SEBI strengthens corporate governance norms, asks big firms to split titles
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The Securities and Exchange Board of India (SEBI) has approved an industry panel’s recommendations on the role and composition of the board of directors in listed companies as part of measures to improve corporate governance standards.

The steps, to be implemented in a phased manner, include reducing the number of director-level positions a person can hold on listed companies’ board and splitting the roles of CEOs, managing directors and chairpersons.

The capital markets regulator said in a statement after a board meeting that, beginning 1 April 2019, a person will be allowed to become a director in no more than eight companies. This number will be reduced to seven the following year. At present, an individual can be a director on the board of 10 listed companies.

The regulator also said that the top 500 companies by market value will be required to have separate CEOs, MDs and chairpersons from 1 April 2020. The top 500 companies will also be required to have at least six directors and one woman independent director by April 2019; this requirement will expand to top 1,000 companies the subsequent year, SEBI said.

Current regulations specify no board size, and the number of independent directors may vary, depending on whether the chairman is part of the main shareholder group.

The recommendations were part of the Kotak panel’s report on enhancing corporate governance. The panel was formed in June 2017. It was led by veteran banker Uday Kotak and comprised 23 members. These included Zia Mody of law firm AZB & Partners and Cyril Shroff, managing partner at Cyril Amarchand Mangaldas.

The panel submitted its 177-page report to SEBI in October. It proposed tough norms to improve corporate governance, by introducing rules ranging from enhancing the role of independent directors to improving financial disclosures.

According to Kalpana Unadkat, partner at law firm Khaitan & Co, SEBI surprised the Street by accepting a majority of the recommendations suggested by the Kotak committee despite strong opposition from India Inc.

“The companies have time until 1 April 2020 to transition to the new provisions, so it really should not be an issue. Considering that in other jurisdictions, such split (separate CEOs, MDs and chairpersons) has been implemented voluntarily as a corporate governance measure, I don’t see any reason why this will not work in the Indian environment,” said Unadkat.

For instance, Reliance Group’s chairman Anil Ambani holds directorships in 15 firms, according to disclosures with the Registrar of Companies and Ministry of Corporate Affairs. Aditya Birla Group’s Kumar Mangalam Birla holds directorships in nearly two dozen firms, ministry data showed.

Chandrasekaran Natarajan, who was appointed group chairman at Tata Sons early last year, serves as a director on the boards of 10 companies including that of Tata Sons.

Unadkat said certain revisions in SEBI’s norms are procedural in nature and may increase companies’ compliance cost.

“Perhaps, SEBI’s emphasis should have been on a more stringent enforcement of existing regulations on errant listed entities, instead of prescribing new regulations to curb the non-governance behaviour. One needs to wait to see the fine print and its implementation in days to come,” Unadkat said.

In all, the Kotak committee had proposed about 80 recommendations of which SEBI accepted 40 without modification, while making changes to 15 suggestions and rejecting 18 others.

SEBI also mandated enhanced disclosure of related-party transactions, besides telling listed companies for full disclosure on the use of funds raised via qualified institutional placements and preferential allotments.

The regulator also called for mandatory disclosure of consolidated quarterly results beginning fiscal 2020. In addition, SEBI mandated top 100 companies to hold annual general meetings within five months of completing a financial year, effective 1 April 2019.

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