With a view to enhance the standards of corporate governance of listed entities in India, the Securities and Exchange Board of India (SEBI) constituted the Committee on Corporate Governance (Committee) in June 2017 under the chairmanship of Mr. Uday Kotak. The Committee submitted its report (Report) to SEBI on 05 October 2017 recommending various revisions to the existing corporate governance regime and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR).
Some of the key recommendations of the Committee are:
(a) to the composition and role of the board of directors, inter alia:
- increase the minimum number of directors of a listed entity to 6 (six);
- appoint at least 1 (one) “independent” woman director;
- a director to attend at least half of the total number of board meetings held over the relevant period (meaning a period of 2 (two) consecutive financial years on a rolling basis, commencing from the financial year immediately succeeding the date of appointment), with effect from 1 April 2018, failing which his/ her continuance on the board shall be subject to ratification by the shareholders at the next annual general meeting (notwithstanding the nature of directorship);
- quorum of every meeting of the board of directors of the listed entity to be one-third of its total strength or 3 (three) directors, whichever is higher, including at least 1 (one) independent director;
- permit a person above 75 (seventy five) years of age to continue or be appointed as non-executive director only after approval by shareholders’ special resolution;
- permit a person to hold office as a director (including alternate directorship) in only 8 (eight) listed entities at the same time (of which independent directorships shall not exceed 7 (seven) listed entities), with effect from 1 April 2019 and not more than 7 (seven) listed entities with effect from 1 April 2020;
- furnish a confirmation in the corporate governance report that “the board of directors has been responsible for the business and overall affairs of the listed entity in the relevant financial year and that the reporting structures of the listed entity, formal and informal, are consistent with the above”;
- ensure that the chairperson of the board, of all listed entities which have more than 40% (forty percent) public shareholdingat the beginning of a financial year,shall be a non-executive director; and
- increase the number of board meetings to 5 (five) in a year at least once a year, the board to specifically discuss strategy, budgets, board evaluation, risk management, environment, sustainability and governance and succession planning;
(b) to the institution of independent directors, inter alia:
- at least half of the board of directors to be independent directors and with effect from 1 April 2019 for the top 500 (five hundred) listed companies and with effect from 1 April 2020 for all other listed entities;
- independent director not to be member ofthe promoter group of the listed entity and should give declaration of his/ her independence and the board to undertake due assessment of the independence of independent directors and furnish a confirmation to this effect in the corporate governance report; and
- minimum total remuneration in aggregate of INR 500,000 (Rupees five hundred thousand) per annum, for top 500 (five hundred) listed entities and minimum sitting fees of INR 50,000 (Rupees fifty thousand) for top 100 (hundred) listed entities and INR 25,000 (Rupees twenty five thousand) for next 400 (four hundred) listed entities, for board meetings. The aforesaid amounts are exclusive of the sitting fees for audit committee and other board committee meetings;
(c) to the promoters/ controlling shareholders and related party transactions, inter alia:
- addition of a new chapter on “information rights of certain promoters and significant shareholders” in the SEBI LODR to permit flow of information to any counter party (being promoter of the listed entity having shareholding more than 25% (twenty five percent) or is in direct or indirect control of such promoter or has nominated a director on the board of directors of the listed entity), by way of an agreement;
- with regard to re-classification of promoters/ classification of entities as professionally managed, a promoter post re-classification can continue to hold up to 10% (ten percent) of aggregate shareholding;
- it is recommended that the listed entity shall submit within 30 (thirty) days of publication of its standalone and consolidated financial results for the half year, disclosures of related party transactions on a consolidated basis, to the stock exchanges and publish the same on its website;
- it is recommended to amend the definition of related parties to include promoters/ promoter group of listed entities having shareholding 20% (twenty percent) or above; and
- brand usage or royalty payments to related parties exceeding 5% (five percent) of the annual consolidated turnover of the listed entity are proposed to be deemed material.
The Report may be accessed through the following link:
http://www.sebi.gov.in/sebi_data/attachdocs/oct-2017/1507200012576.pdf