Call for greater scrutiny of 'complex cos'

Sebi panel's opining on the need for better governance structures in such cases fuels lobbying on definition and improved disclosure standards for such firms, to enable informed decision by minority s

A recent remark by an experts group that ‘complex companies’ need different corporate governance structures has sparked hope that the Securities and Exchange Board of India (Sebi) would soon announce more checks and balances to ensure transparency in such companies.

Earlier, this month, its International Advisory Board had recommended separate governance standards for “big and complex business groups”.

Following which, corporate governance experts and minority shareholder rights activists have asked that Sebi prescribe greater disclosure standards for companies with complex structures, to check transactions which could be against the interest of public shareholders.

In recent times, public shareholders in many listed firms have battled the management of several companies, including Maruti Suzuki, Holcim and Tata Motors, over proposals perceived to put them in a disadvantageous position. Experts say several companies deliberately put in place complex structures.

Proxy advisory firms opine there is a need to ensure greater transparency, achievable by a clearer understanding of the flow of transactions between  a parent company and its subsidiary.

“With multiple subsidiaries and a complex holding structure, it is natural for them to have numerous transactions within the group. In such cases, there should be greater disclosure standards, not only for transactions between parent and subsidiaries but also between the subsidiaries,” said J N Gupta, managing director (MD) of SES proxy advisors. Experts say companies often have such as complex holding structure that even regulators fail to understand the control chain.

“Any change in the holding structure should be disclosed by all companies, whether listed or not, to remove ambiguity,” said Shriram Subramanian, MD of InGovern, a proxy advisory and corporate research services company. Many Indian companies, listed and unlisted, have subsidiaries that are operational abroad. In such a scenario, both minority shareholders and investors suffer a regulatory vacuum.

“In many cases, there are subsidiaries outside the jurisdiction of Sebi, as well as the ministry of corporate affairs. The one way investors can be protected is if Indian regulators ensure any transaction outside their purview should be publicly disclosed, so that shareholders can make informed decisions,” Subramanian said.

Experts said the regulator should first clearly define which companies would fall under the ‘complex business group’ tag. “It is important for the regulator to classify the definition of complex businesses — whether it is the size that matters or product diversity,” said Amit Tandon, MD of IiAS proxy advisors.