Corporate Governance Current Affairs

Recommendations of Uday Kotak Committee on Corporate Governance

21-member Committee on corporate governance headed by banker Uday Kotak has submitted its report to the Securities and Exchange Board of India (SEBI).

The panel was constituted by SEBI in June 2017. It was given four months to submit its recommendations. In its suggestions it has recommended major overhaul of corporate governance norms for listed firms.

Recommendations of Committee

Separation of the roles: Roles of chairman and managing director at listed firms should be separated and chairmanship should be limited to only non-executive directors. Listed firms with more than 40% public shareholding should have separate roles of chairperson and MD/CEO with effect from April 1, 2020. After 2020, SEBI may examine extending requirement to all listed entities with effect from 2022.

Minimum board strength: It should be increased to 6 members and at least one woman should be appointed as independent director. At least five board meeting for listed firms should be held in year up from current practice of four meetings. Firms’ board should at least once a year discuss succession planning and risk management.

Independent Directors: At least half of board members to be independent directors at listed companies, while all directors must attend at least half of board meets. Public shareholders’ nod must be mandatory for non-executive directors over 75 years of age.

Shareholder meeting and cash flow statement: Top 100 firms by market capitalisation should webcast shareholder meeting and all listed firms should have cash flow statement every six months. It should be mandatory disclosure of quarterly consolidated earnings by listed firms.

Credit ratings: Updated list of all credit ratings obtained by the listed entity must be made available at one place, which would be very helpful for investors and other stakeholders.

Minimum remuneration: Independent directors must get minimum remuneration of Rs 5 lakh per annum and sitting fee of Rs 20,000-50,000 for each board meet. It should be mandatory for firms to seek public shareholders’ approval for annual remuneration of executive directors from promoter family if amount is above Rs 5 crore or 2.5% of firm’s net profit.

In case of more than one such director, same condition should apply for aggregate annual remuneration exceeding 5% of the net profit. The approval of shareholders must be required every year in which  annual remuneration payable to single non-executive director exceeds 50% of total annual remuneration payable to all non-executive directors.

Risk management and IT committee: Top-500 listed companies should have risk management committee of boards for cyber security. In addition, listed entities must constitute an information technology committee that will focus on digital and technological aspects.

Tags:

SEBI Constitutes Committee on Corporate Governance

Market Regulator SEBI has formed a Committee on Corporate Governance under the chairmanship of Uday Kotak, the executive vice chairman and managing director of Kotak Mahindra Bank. The move is aimed at improving the standards of corporate governance of listed companies. 

Salient Highlights

The panel which is headed by Uday Kotak will also include representatives of Corporate India, stock exchanges, professional bodies, investor groups, chambers of commerce, law firms, academicians and research professionals and SEBI.

The panel has been mandated to submit the report within a period of four months. 

The mandate of the committee is to make recommendations on:

  • Ensuring independence in spirit of independent directors and their active participation in functioning of the company.
  • The steps that are need to be taken for improving safeguards and disclosures pertaining to related party transactions.
  • To suggest measures for addressing issues faced by investors on voting and participation in general meetings
  • The steps required for improving effectiveness of board evaluation practices.
  • Suggest on issues pertaining to disclosure and transparency.

Background

In April, SEBI unveiled the detailed corporate governance norms for listed companies. The new norms which are in alignment with the new Companies Act would be effective from October 1. The new norms are aimed at encouraging companies to adopt best practices on corporate governance. SEBI’s new norms provides for stricter disclosures and protection of investor rights including equitable treatment for minority and foreign shareholders.

SEBI

SEBI is the statutory regulator for the securities market in India established in 1988. It was given statutory powers through the SEBI Act, 1992. SEBI’s headquarters is in Mumbai, Maharashtra. 

SEBI’s mandate is to protect the interests of investors in securities, promote the development of securities market and to regulate the securities market.

The Key functions of SEBI are as follows: Regulating stock exchanges and other securities markets; Registering and regulating the working of intermediaries who are associated with securities markets in any manner; Registering and regulating the working of venture capital funds and collective investment schemes including mutual funds; promoting and regulating self-regulatory organizations and prohibiting fraudulent and unfair trade practices relating to securities markets.

Tags: