A 21-member panel headed by banker Uday Kotak has recommended a major overhaul of the corporate governance norms for listed firms. The panel on corporate governance, which submitted its report to the Securities and Exchange Board of India (Sebi) on Thursday has suggested separation of the roles of chairman and managing director at listed firms, limiting chairmanship to only non-executive directors.
“The issue of whether to separate the roles of the chairperson and the CEO/MD, while not a recent phenomenon, is a growing concern in corporate governance worldwide … After deliberation, the committee believes that the time is right in India to introduce a separation of the roles of the chairperson and the CEO/MD for listed entities. The committee observed that such separation, at least at the stage of introduction of the construct, may be more relevant where public shareholders constitute a large portion of the shareholding of a company,” said the panel report.
It has suggested that listed firms with more than 40 percent public shareholding should separate the roles of chairperson and MD/CEO with effect from April 1, 2020. “After 2020, Sebi may examine extending the requirement to all listed entities with effect from April 1, 2022.,” the panel said.
The panel has also recommended increasing the minimum board strength of listed firms to six members and appointment of at least one woman as independent director. It has suggested at least five board meeting for listed firms in a year up from the current practice of four meetings. Apart from this, it has suggested that firms’ board should at least once a year discuss succession planning and risk management. The existing norms require at least one woman on board, irrespective of her being an independent or executive director. The panel also called for having at least half of board as independent directors, up from one-third currently. It has also recommended that the top 100 firms by market capitalisation should webcast shareholder meeting and all listed firms should have cash flow statement every six months. It also wants mandatory disclosure of quarterly consolidated earnings by listed firms.
“The committee is of the opinion that an updated list of all credit ratings obtained by the listed entity be made available at one place, which would be very helpful for investors and other stakeholders,” said the panel. The panel was set up by Sebi in June this year. It was given four months to submit its recommendations. According to the report of the panel, released by Sebi, it has suggested at least half of board members to be independent directors at listed companies, while all directors must attend at least half of board meets. Apart from this, public shareholders’ nod would be must for non-executive directors over 75 years of age. Sebi has sought public comments on the recommendations till November 4.
The panel has suggested a minimum remuneration of Rs 5 lakh for independent directors per annum and a sitting fee of Rs 20,000-50,000 for each board meet. It has also sought to make it mandatory for firms to seek public shareholders’ approval for annual remuneration of executive directors from promoter family if the amount is above Rs 5 crore or 2.5 per cent of the firm’s net profit. In case of more than one such director, the same condition would apply for aggregate annual remuneration exceeding 5 per cent of the net profit.
The approval of shareholders will be required every year in which the annual remuneration payable to a single non-executive director exceeds 50 per cent of the total annual remuneration payable to all non-executive directors. The panel has recommended that top-500 listed companies should have a risk management committee of boards for cyber security. In addition, listed entities should constitute an information technology committee that will focus on digital and technological aspects.
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