Listed companies will soon have a new Corporate Governance Code, requiring them to justify high executive salaries, putting in place an orderly succession plan and adopting a whistle-blower policy.
The Corporate Governance Code is being put in place after taking into account public comments to draft corporate governance norms released by capital markets regulator Sebi earlier this year as well as the related provisions in the new Companies Act, 2013.
"The new Companies Act has brought in a new dimension and a lot of clarity from corporate governance point of view," Sebi Chairman U K Sinha said.
"Our discussion paper on corporate governance is already in public domain for quite some time. We will be now taking a call on that," he added.
The discussion paper was floated in January and the draft norms also seek to grant greater oversight by minority shareholders and independent directors and check any unjustifiable payments to related parties.
It has also proposed to introduce a new concept of 'Corporate Governance Rating' by independent agencies to monitor the level of compliance by the listed companies, in addition to regular inspection by Sebi and stock exchanges.
While Sinha did not disclose the details of final set of regulations in this regard, he said that corporate governance has been one of the key focus areas for Sebi over the past one year and the regulator is looking to further enhance the compliance standards of listed companies.
While Sebi has already taken a number of steps in areas of corporate governance and investor protection, the next step would be putting in place final norms emanating from the draft regulations proposed in January this year, he added.
The 54-page discussion paper also talked about a greater alignment of CEO salaries with the performance and goals of the company, as also a mandatory disclosure of ratio of remuneration paid to the each of their directors and their median staff salary. Similar provisions have been made in the new Companies Act.
The paper said that "on average, the remuneration paid to CEOs in certain Indian companies are far higher than the remuneration received by their foreign counterparts and there is no justification available to that effect".
Through these measures, Sebi is seeking to adopt better global practices without increasing the cost of compliances, so that confidence of the investors is brought back to market.
On various steps taken by Sebi, Sinha said the regulator has provided clarity on many issues concerning corporate governance and investor protection.
He listed out guidelines and procedures to be followed in case of scheme of arrangements involving a listed company.
"Now, before going to the High Court, the proposal has to come to us and Sebi would apply its mind, give its comments and then only further action can be taken," Sinha said.
He added: "This was done against the background that we had discovered in a number of instances that interest of ordinary shareholder was being compromised and there were also instances of related party transactions, which we obviously could not permit.
"The new norms also makes it mandatory for many matters concerning schemes of arrangement to require approval of the majority of minority shareholders. These are some new concepts that are very significant and give a clear-cut message to the whole world."
Earlier, regulations provided for actions like delisting or suspension of a company's shares, adjudication for levy of monetary penalty, prosecution and debarring of promoters and directors from the markets in case of non-compliance.
However, delisting or suspension was not considered an investor friendly action and therefore, it was decided that they cannot be resorted to as a matter of routine and can be used only in cases of extreme/repetitive non-compliance.
As a result, Sebi is now putting in place measures like companies being asked to get Corporate Governance rating, inspection of compliance by stock exchanges and regulators.
It has also proposed imposing penalties on the company, its directors, compliance officer and key managerial persons for non-compliance "either in spirit or letter".