Board rooms to become more robust, transparent

Corporate board rooms will go through a sea change with the Kotak committee on corporate governance making some far-reaching recommendations on inducting more independent directors, timely disclosure of related-party transactions and splitting the role of chairman and MD/CEO. The formalisation of information flow between promoters and companies will make sure that allegations made against Infosys and Tata Sons are not repeated, say CEOs and corporate lawyers.
 
The recommendations are grounded in market realities and benchmark India against best global governance practices. Though a few promoters said recommendations like appointing more independent directors, including women, would be a difficult task due to lack of talent.  

 
“The recommendations will have far-reaching implications on the board rooms with half of the board consisting of independent directors and dividing the role of chairman and MD/CEO. This is the best in global standards and will change Corporate India’s board room for ever and for good. But for many mid-sized Indian companies, it would be difficult to enforce these stringent governance norms as they are not used to them,” said a CEO of a company asking not to be named.
 

If these recommendations are accepted,Reliance Industries will not only have to separate the role of its chairman and MD, Mukesh Ambani,  but will also have to include more independent directors, including a woman director apart from Nita Ambani, who is from the promoter family.  Many Tata group companies will have to include more independent directors – especially after their role became critical in the aftermath of former group chairman Cyrus Mistry’s battle with group patriarch, Ratan Tata. Many Aditya Birla group companies will have to hire women directors though Kumar Mangalam Birla is not the MD and CEO of any group company.

 
Many company owners have welcomed the move. “The winds of change are expected to separate the wheat from the chaff. This will augur well for the industry,” said Harsh Goenka, chairman of the RPG group, which has professional management in all its companies.
 
“The effort to usher greater transparency and improve autonomy and accountability of directors would, hopefully, be a game-changing milestone towards better governance,” said Samir Paranjpe, partner, Grant Thornton India.
 
“The recommendations are aimed at achieving the dual objective of shareholder protection and long-term value creation by companies,” said  Bengaluru-based investor advisory firm Institutional Investor Advisory Services.  The report builds on the legal framework established by the Companies Act, 2013, and the SEBI Listing Obligations and Disclosure Requirements, putting recommendations within the reach of corporates. Besides, the transition window from between 2018 and 2020 provides boards time to adjust, allowing for phased implementation of the recommendations, it said.

 
Another important recommendation of the committee is that the market regulator,  Sebi, will have the right to pull up auditors for any lapse in corporate governance norms and penalise them. In the past, some of India’s top auditors, including some from the Big Four firms, were found clearing  annual reports despite companies being accused of corporate governance violations as in the case of United Spirits.  This recommendation would make sure that auditors, who are seldom pulled up by their self-regulated body, do a thorough job while certifying accounts, said a lawyer.