MOSL: STRATEGY-Embarking on a new era of corporate governance-SEBI Committee proposes a host of changes

Strategy: Embarking on a new era of corporate governance; SEBI Committee proposes a host of changes

The 23-member committee formed under the chairmanship of Mr Uday Kotak submitted its 170-page recommendations report on ‘Corporate Governance in India’ to the Securities and Exchange Board of India (SEBI) on 5 October 2017. The committee was formed with the objective of bridging the gap between the global and Indian corporate governance standards. The report broadly tries to address five key areas: (i) improving board effectiveness, (ii) bringing transparency in disclosure of related-party transactions, (iii) elevating accounting and audit practices, (iv) improving disclosure standards and (v) Judicious method in exercising the voting rights. Further, the committee has proposed a transition window, between 2018-2020, which would give the board’s adequate time to effect phased implementation of the recommendations.

Key takeaways

• The committee recommendations contained comprehensive detailing on each aspect of governance; however, there were 5 broad themes that were highlighted. Few points, that stood out for us, within these themes have been listed below:
  

1.Board effectiveness

• ​Listed companies are required to have at least six directors on the board, with a minimum of 50% representation of independent directors — including one woman director. According to the Companies Act 2013, currently, a minimum of three directors are required on the board of a public limited company.
  
• The committee has proposed (i) disclosure of the expertise of the directors being appointed, (ii) increasing the number of board meetings from four to five every year and (iii) capping the maximum number of directorships to seven by April 2020.
  
• Starting April 2020, companies with a public shareholding of 40% or more will need to separate the roles of chairperson and CEO, and appoint a non-executive chairperson in order to prevent excessive concentration of power in one individual.
  
• Boards must meet more often, and disclose if they refuse to accept any of the recommendations of audit or remuneration committees.