Proposing a major overhaul of corporate governance norms for listed companies, the Securities and Exchange Board of India (Sebi) has suggested an omnibus set of measures that align pay of top-level executives in companies with their performance and providing greater powers to minority shareholders. It also makes it necessary to expand the size of the boards by excluding nominee directors from the definition of independent directors. The regulator has also proposed a new concept of ‘Corporate Governance Rating’ by independent rating agencies to monitor the level of compliance by companies and regular inspection by the Sebi and stock exchanges.
The measures incorporate the Adi Godrej committee report, the Companies Bill 2012 and Sebi’s own corporate governance guidelines in one document. Sebi has, however, differed from the Companies Bill saying it wanted the “jurisdiction to prescribe matters relating to corporate governance for listed companies” to be given to it. But “it was decided by the Ministry of Corporate Affairs that core governing principles of corporate governance may be provided in the bill itself”.
It has noted that “the remuneration paid to CEOs in certain Indian companies (on average) are far higher than the remuneration received by their foreign counterparts and there is no justification available to that effect”. It has proposed mandatory disclosure by listed companies of ratio of remuneration paid to the each of their directors and their median staff salary. About succession planning, it said the best way to ensure that a company does not suffer due to a sudden unplanned for gap in leadership is to develop an action plan for a successful transition.
Sebi said institutional investors should show more involvement in the boards where they have nominee directors instead of just protecting their investments. This will relate to policies on conflicts of interest and insider information. Institutional investors should seek to satisfy themselves, to the extent possible, that the investee company’s board and committee structures are effective, and that independent directors provide adequate oversight, including by meeting the chairman and other members.
Sebi has proposed to exclude the nominee directors from the category of independent directors to align the provisions of Clause 49 with the bill. “The proposal to have minimum and maximum age for the independent director may be examined in light of the above,” it said.
On electing a director from small shareholders, Sebi said, “Clause 151 of the Companies Bill has similar provision enabling a