Suggesting a major overhaul of corporate governance
norms for listed companies, a panel set up by the Securities and Exchange Board of India (Sebi) on Thursday recommended limiting chairmanship to only non-executive directors and appointing at least one woman as independent director.
While the proposal for only non-executive director being allowed to be made chairman would eventually lead to a split in the chairman and managing director posts, the committee also suggested increasing the minimum board strength to six members and the number of board meetings to five in a year.
The current rules require that there must be one woman on board, irrespective of her being an independent or executive director. The new recommendations also call for the boards to have at least half of their members as independent directors, up from one-third at present.
Besides, the panel, headed by Kotak Mahindra Bank Executive Vice-Chairman & Managing Director Uday Kotak, also suggested a minimum remuneration of Rs 5 lakh per annum for independent directors
and a sitting fee of Rs 20,000-50,000 for each board meeting.
It also sought to make it mandatory to seek public shareholders’ approval for annual remuneration of executive directors from promoter family if the amount exceeds Rs 5 crore or 2.5 per cent of the company’s net profit.
In case of more than one such director, the same condition would apply for aggregate annual remuneration exceeding 5 per cent of the net profit.
The approval of shareholders will be required every year if the annual remuneration payable to a single non-executive director exceeds 50 per cent of the total annual remuneration payable to all non-executive directors.
Sebi has sought public comments till November 4 on the panel’s recommendations, which run into 177 pages and cover a host of issues.
The panel has also suggested at least half of board members to be independent directors
at listed companies, while all directors must attend at least half of board meets. Besides, public shareholders’ nod would be a must for having non-executive directors over 75 years of age on the board.
The panel, which submitted its report on Thursday, was set up by Sebi in June this year with a view to enhancing the standards of corporate governance
at listed entities in India.
The committee consisted of officials from the government, industry, professional bodies, stock exchanges, academicians, lawyers and proxy advisors. The committee was asked to submit its report within four months.
The terms of reference of the committee were to make recommendations to Sebi on various issues, including ensuring independence in spirit of independent directors
and their active participation in functioning of the company.
Besides, the suggestions are aimed at improving safeguards and disclosures pertaining to related party transactions. They also cover issues in accounting and auditing practices by listed companies
and seek to improve effectiveness of board evaluation practices.
The report also seeks to address issues faced by investors on voting and participation in general meetings, and disclosure and transparency related issues.