Sebi to issue corporate governance guidelines

May spell out changes through a regulation instead of a piece mean approach

The Securities and Exchange Board of India (Sebi) is likely to enact a new regulation to incorporate various provisions in the new Companies Bill. In order to beef up corporate governance practice among companies, the Companies Bill stipulates strict guidelines on appointment of independent directors, related party transactions, class action suits, and corporate social responsibility (CSR) spends.

According to sources, instead of a piece-meal approach, Sebi could detail various provisions pertaining to corporate governance through a new regulation.

Although the Companies Act is independent of the Sebi Act, the market regulator has the jurisdiction to prescribe norms related to corporate governance for listed companies.

During the start of the year, Sebi had issued a consultative paper to review the corporate governance norms in the country. The paper was aimed at realigning corporate governance practices under Clause 49 of the listing agreement and, in some places, imposing even stringent conditions than those in the Companies Act. Most of the proposals in the discussion paper are likely to be accepted, sources said.

According to a source, the market regulator might first wait for the government to notify the sections of the new Companies Bill. So far, the government has notified about 100 sections, none of which is pertaining to corporate governance.

These new regulations will give minority shareholders a bigger say in certain decision-making processes of listed companies. The discussion paper had proposed giving the power to minority shareholders to appoint at least one independent director in a company. It also suggested related party transactions by listed companies should obtain shareholders’ approval and that affirmative rights can’t be given to private investors or financial institutions.

Some of the other path-breaking proposals included regulatory support to class action suits and mandatory rotation of audit partner. Another proposal calls for greater participation of institutional investors by asking them to have a clear policy on voting and managing conflict of interest.