Focus on corporate code

Mumbai, Jan. 4: The Securities and Exchange Board of India (Sebi) today proposed to tighten corporate governance standards by revising Clause 49 of the listing agreement that listed entities must sign with bourses.

The capital market watchdog floated a discussion paper today that contained proposals designed to bring Clause 49 in line with provisions in the Companies Bill 2012 that was passed last month by the Lok Sabha. It also wormed in some of the well-established governance standards culled from other parts of the world.

It said the objective was to ignite a wider debate on corporate governance. But while doing so, it said it wanted to strike a balance between the costs of compliance for companies and the need to restore the confidence of investors in the capital market.

At present, Clause 49 of the equity listing agreement contains a mix of mandatory as well as non-mandatory provisions. Those that are absolutely essential for corporate governance can be defined with precision and which can be enforced without any legislative amendments are classified as mandatory. Others, which are either desirable or which may require a change of laws, are classified as non-mandatory.

The regulator suggested that companies must take the approval of its minority or disinterested shareholders for managerial remuneration beyond a particular limit and called for enhanced disclosure of remuneration policies.

The paper also proposed several key changes with regard to the mode of selection, tenure and the fiduciary responsibilities of independent directors whose performance will be subject to peer-level scrutiny.

For the first time, Sebi also floated the idea of setting a minimum and maximum age for independent directors and sought public comment on the proposal to limit number of independent directorships that an individual can accept.

The market regulator has also suggested the appointment of an independent director by minority shareholders called the "small shareholder director". This is designed to plug a shortcoming in the present system where independent directors are picked by the majority shareholders � read promoters. This has led to apprehensions that they occupy their position at the will of the controlling shareholders (promoters) and may, therefore, be prone to act in accordance with the will of the major shareholders, thereby compromising their independence.

SEBI expressed concern that the remuneration paid to the chief executive officers in certain Indian companies was far higher than what their foreign counterparts get. It said listed entities must fix a remuneration policy for the directors, key managerial personnel and other employees in line with the provisions of the Companies Bill 2012.

They will also have to need to disclose in the Board's report, the ratio of the remuneration of each director to the median employee's remuneration.

According to SEBI while formulating the remuneration policy, the focus should be on striking a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals.

SEBI said promoters managed most Indian companies, sparking concerns about excessive managerial remuneration to executives who form part of the promoter group. While this could constitute related party transactions (RTP), the Companies Bill prohibits interested shareholders from voting in such transaction approvals. SEBI has, therefore, suggested that companies must take approval of disinterested/minority shareholders for managerial remuneration beyond a particular limit.

The discussion paper also had important suggestions with regard to independent directors. There have been instances of directors resigning from the board, without quoting any reasons and it could be due to their disagreement with the management in certain matters.

To bring the listing requirements in line with the Companies Bill, SEBI has recommended that upon such a resignation, the Board of a company should intimate the Registrar and forward a copy of his resignation along with detailed reasons.

If the suggestions of the discussion paper are accepted, it will also mean that companies will have to evaluate the performance of non-executive directors.

At present, a peer group can review the performance of these directors but it isn't mandatory. Henceforth, the performance of the independent director will be judged based on his attendance and contribution to the board/committee meetings and this will be considered if he has to be re-appointed.

The discussion paper also mooted corporate governance standards for promoters or controlling shareholders. SEBI said that it would lay down specific fiduciary responsibilities controlling shareholders and also consider the feasibility of mandating relationship agreement between the company and the controlling shareholder that will specify the duties and responsibilities of controlling shareholders.

The regulator also called for companies to come out with succession policies so that they are not affected by a sudden gap in leadership. The discussion paper here mooted that the board of a listed company may be required to ensure that plans are in place for the orderly succession for appointments to the board and senior management. It further said that the viability of mandatory disclosure of succession planning to board or the shareholders at periodic intervals may also be examined.

Some of the other crucial suggestions of the paper was the segregation of the roles of chairman and that of the managing director/CEO in line with the provisions of the Companies Bill and making the framing of a whistleblower policy mandatory for listed companies.

The discussion paper also suggested that companies must take approval of minority shareholders for divestment of major subsidiaries as there have been instances where such subsidiaries have been transferred to controlling shareholders.

Matches

MORE TOP STORIES TODAY

Mumbai Indians vs Kolkata Knight Riders

Mumbai Indians vs Kolkata Knight Riders

Abu Dhabi: Kolkata captain Gautam Gambhir elects to bat in the season-opener of IPL-7. More »

Srinivasan named in fixing report: SC

Srinivasan named in fixing report: SC

The court emphasised that the tainted administrator can no longer work for the BCCI. More »

'If you do the wrong thing it will be found out'

'If you do the wrong thing it will be found out'

'Everyone knows what is right and what is wrong and if you do the wrong thing it will be found out' More »

Why I'm not looking forward to the IPL

Why I'm not looking forward to the IPL

Welcome to another season of a league that many watch but few trust. More »

Mitchell Johnson may quit T20s for Test cricket

Mitchell Johnson may quit T20s for Test cricket

Australia's Mitchell Johnson may quit limited-overs cricket to prolong his test career with an eye on the 2015 Ashes series in England, the fast bowler… More »

There's a lot going on: Fleming

There's a lot going on: Fleming

He experienced anxious moments in the lead-up to the tournament as the courts decided on whether to suspend the franchise, he said, but stressed that the… More »

Latif couldn’t work with tainted players

Latif couldn’t work with tainted players

Former Pakistan cricket captain Rashid Latif said Tuesday he turned down the job of national chief selector because he could not work with ex-players tainted… More »

We are not over-confident: Bailey

We are not over-confident: Bailey

Indian Premier League — George Bailey-led Kings XI Punjab will face Chennai Super Kings on Friday. More »

Taxing issue — BCCI hits roadblock

Taxing issue — BCCI hits roadblock

MoU between BCCI & its units to avoid double taxation delayed after a few decline to share details. More »

Big runs expected, with bat and ball

Big runs expected, with bat and ball

Royal Challengers Bangalore: Their main concern, once again, is the fast bowling More »

Black Caps pick rookie duo for West Indies

Black Caps pick rookie duo for West Indies

New Zealand selectors included two new caps in a 15-man Test squad named Tuesday to tour the West Indies, with injury-hit spinner Dan Vettori's future… More »

The stage is set for IPL-7 to start

The stage is set for IPL-7 to start

The Preview — Defending champions Mumbai Indians take on Kolkata Knight Riders More »

Srinivasan appeals to court to allow BCCI comeback

Srinivasan appeals to court to allow BCCI comeback

He was aggrieved by the allegations against him during the hearing. More »

India: cricket's Brazil

India: cricket's Brazil

They are tough to beat with a big talent base exposed to good facilities. (CYCSPL) More »

Delhi Daredevils say no to gifts

Delhi Daredevils say no to gifts

Franchises are doing their bit to refurbish the image of the tainted league. More »

India-Pakistan Test series likely in 2015

India-Pakistan Test series likely in 2015

The revival of Indo-Pak Test ties could take place in UAE. More »

Klinger on his exit from South Australia

Klinger on his exit from South Australia

Michael Klinger has revealed he felt compelled to leave South Australia after being told he would be only a fringe part of the Redbacks' plans for next season, and disputed the suggestion that he left… More »

Kohli hopes to end RCB trophy drought

Kohli hopes to end RCB trophy drought

'This time around we will hope to go few more steps ahead and actually get that trophy' More »

Gavaskar can help IPL regain glory

Gavaskar can help IPL regain glory

Apart from the foreign players a lot of behind-the-scene activity has taken place in selecting the Indian domestic players. More »

Tendulkar, Ganguly to promote soccer

Tendulkar, Ganguly to promote soccer

Leading Spanish club Atletico Madrid and former cricketers Sachin Tendulkar and Sourav Ganguly are among the owners of eight franchises of a new Indian… More »

This isn’t my first trip to India: Neesham

This isn’t my first trip to India: Neesham

Kiwi all-rounder wants to utilise the India leg to explore the country’s tourist attractions. More »

Ishant wanted to quit ODIs

Ishant wanted to quit ODIs

Says his mother made him change his mind. More »

Supreme Court says no to BCCI’s request

Supreme Court says no to BCCI’s request

Bench refuses to grant access to recordings of Srini and Dhoni’s depositions before Mudgal committee. More »

Pietersen’s ‘little’ secret is out

Pietersen’s ‘little’ secret is out

A fractured little finger could now throw the Delhi Daredevils captain out of action at the start of this season. More »