Board-room Changes Can Bring Better Corporate Governance
Securities and Exchange Board of India (SEBI) has recently taken a much needed step, which can transform the way companies function. If implemented in the right spirit , it can improve the Corporate Governance drastically.
What is so New
SEBI has asked the listed companies to split the post of Chairman and Managing Director , and have atleast six independent directors including a woman on the Board. It has set-up a deadline of April 1, 2019 for induction of six independent directors. As regard splitting the post of CMD, the deadline will be April 1, 2020.
Uday Kotak Panel
SEBI had appointed Uday Kotak Panel to give its recommendations on improving Corporate Governance. The Panel had submitted its recommendations last year in the month of October. The regulator's board accepted 40 out of 80 recommendations made by the Panel.
Current Scenario
Currently, several listed companies have combined Chairman and Managing Director's post, popularly call as CMD that overlap the board and the management in some cases, which causes conflict of interest. In public sector companies, the CMD position is held by a single person.
The Regulator has asked current top 500 companies to appoint atleast one woman independent director by April 1,2019. Presently the rule says one woman director on board, whether independent or executive director.
Changes in the Offing
Now the top 1000 listed companies have to appoint minimum six directors from April 1, 2019. It now restrict a person to hold directorship position in only upto eight listed entities. It further says that a person can not hold independent director's position in more than seven listed entities. Under the new norms, top 500 listed companies will have to ensure that the chairperson is a non-executive director from April 1, 2020, It will eventually lead to split in the post of Chairman and Managing Director.
SEBI has enhanced disclosure of related party transactions and made mandatory secretarial audits for listed entities and their material subsidiaries. It has also asked listed top 100 companies to webcast proceedings of the annual general meetings.
With regards to related parties 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 company will be deemed to be related party. Besides, shareholder's approval will be needed for making royalty or brand payments to the related party exceeding 2 per cent of consolidated turnover.
The new rules also cover is issues in accounting and auditing practices by listed companies in order to improve effectiveness of board evaluation practices. It also said companies will now have to disclose details about utilization of funds raised through qualified institutional placement (QIP) and preferential issues in Annual Reports.
Effectiveness of these Steps
The decision taken by SEBI can prove landmark in the area of Corporate Governance provided they are implemented in the real spirit. Independent directors if they are really independent, they can bring much desired transparency in the working of companies. In fact there should be a registry where bio data of independent directors should be available and should be in public domain. This will eliminate possibility inducting shoddy characters in boards as we have seen in case of Neerv Modi, Mehul Chowksy and host of other companies boards.
What is so New
SEBI has asked the listed companies to split the post of Chairman and Managing Director , and have atleast six independent directors including a woman on the Board. It has set-up a deadline of April 1, 2019 for induction of six independent directors. As regard splitting the post of CMD, the deadline will be April 1, 2020.
Uday Kotak Panel
SEBI had appointed Uday Kotak Panel to give its recommendations on improving Corporate Governance. The Panel had submitted its recommendations last year in the month of October. The regulator's board accepted 40 out of 80 recommendations made by the Panel.
Current Scenario
Currently, several listed companies have combined Chairman and Managing Director's post, popularly call as CMD that overlap the board and the management in some cases, which causes conflict of interest. In public sector companies, the CMD position is held by a single person.
The Regulator has asked current top 500 companies to appoint atleast one woman independent director by April 1,2019. Presently the rule says one woman director on board, whether independent or executive director.
Changes in the Offing
Now the top 1000 listed companies have to appoint minimum six directors from April 1, 2019. It now restrict a person to hold directorship position in only upto eight listed entities. It further says that a person can not hold independent director's position in more than seven listed entities. Under the new norms, top 500 listed companies will have to ensure that the chairperson is a non-executive director from April 1, 2020, It will eventually lead to split in the post of Chairman and Managing Director.
SEBI has enhanced disclosure of related party transactions and made mandatory secretarial audits for listed entities and their material subsidiaries. It has also asked listed top 100 companies to webcast proceedings of the annual general meetings.
With regards to related parties 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 company will be deemed to be related party. Besides, shareholder's approval will be needed for making royalty or brand payments to the related party exceeding 2 per cent of consolidated turnover.
The new rules also cover is issues in accounting and auditing practices by listed companies in order to improve effectiveness of board evaluation practices. It also said companies will now have to disclose details about utilization of funds raised through qualified institutional placement (QIP) and preferential issues in Annual Reports.
Effectiveness of these Steps
The decision taken by SEBI can prove landmark in the area of Corporate Governance provided they are implemented in the real spirit. Independent directors if they are really independent, they can bring much desired transparency in the working of companies. In fact there should be a registry where bio data of independent directors should be available and should be in public domain. This will eliminate possibility inducting shoddy characters in boards as we have seen in case of Neerv Modi, Mehul Chowksy and host of other companies boards.
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