Sebi to listed firms: Split CMD post, 6 independent directors must on board

Currently, several listed companies have integrated the two positions as CMD (chairman-cum managing director) that overlap the board and the management in some cases, which could cause conflict of interest. In public sector companies, the CMD position is held by one person. The regulator has asked top 500 companies to appoint at least one woman independent director by April 1, 2019. The current rules require that there must be one woman on board, irrespective of her being an independent or executive director.

Sebi also asked the top 1,000 listed companies to have minimum six directors from April 1, next year. A person will not hold directorship position in more than eight listed entities from April 1, 2019 and in not more than seven listed firms from 2020. Further, Sebi said that a person will not serve as an independent director in more than seven listed entities. Under the new norms, top 500 listed entities will have to ensure that the chairperson is a non-executive director from April 1, 2020. It will eventually lead to a split in the post of chairman and managing director.

The regulator has enhanced disclosure of related-party transactions and made mandatory secretarial audits for listed entities and their material subsidiaries. It also asked the top 100 listed companies to webcast annual general meetings. These regulations will come into effect in two phases. Most of the changes will be effective April 1, 2019, and April 1, 2020, Sebi said in a notification.

With regard to related party transaction, Sebi said that any person or entity belonging to the promoter group of the listed entity and holding at least 20 per cent stake in the listed firm will be deemed to be a related party. Besides, shareholder approval will be needed for making royalty or brand payments to related parties exceeding 2 per cent of consolidated turnover.

The new rules also cover issues in accounting and auditing practices by listed companies in order to improve effectiveness of board evaluation practices. Sebi also said companies will now have to disclose details about utilisation of funds raised through qualified institutional placement (QIP) and preferential issues in their annual reports.