SEBI for phased roll-out of governance norms

SEBI for phased roll-out of governance norms

Context

The Securities and Exchange Board of India (SEBI) plans to introduce new corporate governance norms as proposed by the Kotak Committee, in a phased manner for listed entities, with only the bigger companies required to comply in the initial phase as opposed to all the listed companies

Why not implement it at one go?

There are proposals that, if implemented for the complete market at one go, would create genuine hurdles and so the view is that a phased implementation would work better

Kotak Committee

The 23-member committee under the chairmanship of Uday Kotak had submitted its 177-page report to SEBI in October. It proposed, among many other things, that

• 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.