Mumbai: The committee on corporate governance constituted by the Securities and Exchange Board of India (Sebi) has recommended sweeping changes to governance practices followed by listed firm that includes separation of the office of chairman and MD, disclosure detailing the reasons for the resignation of an independent director prior to the expiry of the term and enhanced monitoring of group entities with one independent director of the holding company being on the board of its Indian as well as foreign subsidiary besides setting up a dedicated group governance unit or governance committee.
“The separation of powers of the chairperson (the leader of the board) and CEO/MD (the leader of the management) is seen to provide a better and more balanced governance structure by enabling better and more effective supervision of the management,” the report said adding that the listed entities with more than 40 per cent public shareholding should separate the roles of chairperson and MD/ CEO with effect from April 1, 2020.
In order to strengthen the effectiveness of corporate boards, the committee headed by Uday Kotak has also proposed to have a minimum of six directors on the board with 50 per cent independent directors irrespective of whether the board is headed by executive or non executive chairman.
The committee has also suggested increasing the minimum number of board meeting to five every year with atleast one meeting focussing on aspects such as strategy, succession planning, budgets, risk management, ESG (environment, sustainability and governance) and board evaluation, which according to the committee are critical to the medium-term and long-term future of a listed entity.
To further improve the gender diversity in the board, the committee has recommended that every listed entity should have atleast one independent women director as against the current regulation requiring one women director on the board.
Another significant recommendation is on the payment of royalty by listed firms to related parties that is likely to have an impact on the operations of multi national companies operating in India.
The committee has recommended that payments made by listed entities with respect to brands usage/royalty amounting to more than 5 per cent of consolidated turnover of the listed entity may require prior approval from the shareholders on a “majority of minority” basis.
The committee has also recommended inserting a separate chapter in Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015 for regulating the information rights including unpublished price sensitive information of certain promoters and significant shareholders.