Sebi finalising new corporate governance code, insider norms

New norms will ensure that those indulging in unlawful insider trading activities are dealt with severely

In wide-ranging overhaul of rules governing 'good business practices' of listed companies and their top executives, Sebi will soon unveil a new Corporate Governance Code and revamp insider trading norms.

The new corporate governance code would require all listed companies to justify their high executive salaries, put in place an orderly succession plan, adopt a whistle-blower policy for employees and limit the number of directorship a person can hold on company boards, besides various other measures to safeguard the interest of minority shareholders.

These new corporate governance norms, along with an overhaul of nearly two decade-old insider trading norms, would be discussed and finalised after Sebi's next board meeting later this month, a senior official said.

The new norms would ensure that those indulging in unlawful insider trading activities are dealt with severely.

Many new categories of persons, including public servants, regulatory officials, judiciary and government officials, dealing with unpublished price-sensitive information are being brought under the purview of insider trading.

At the same time, new norms would also seek to clearly differentiate between 'innocent mistakes' and genuine transactions of company executives from the unlawful and serious trading offences.

Other issues likely to be discussed include additional fund-raising avenues in capital markets, including through real estate and infrastructure investment trusts, although a final decision on these fronts is expected only after the government decides on tax treatment for such instruments.

The new corporate governance code is being put in place after taking into account public comments to draft corporate governance norms released by capital markets regulator Sebi earlier this year as well as the related provisions in the new Companies Act, 2013.

The draft norms were issued in January last year, which also seek to grant greater oversight by minority shareholders and independent directors and check any unjustifiable payments to related parties.

It is also proposed to introduce a new concept of 'Corporate Governance Rating' by independent agencies to monitor the level of compliance by the listed companies, in addition to regular inspection by Sebi and stock exchanges.

The new norms also talk about a greater alignment of CEO salaries with the performance and goals of the company, as also mandatory disclosure of ratio of remuneration paid to the each of their directors and their median staff salary. Similar provisions have been made in the new Companies Act.

It has been felt that "on average, the remuneration paid to CEOs in certain Indian companies are far higher than the remuneration received by their foreign counterparts and there is no justification available to that effect".

Through these measures, Sebi is seeking to adopt better global practices without increasing the cost of compliances, so that confidence of the investors is brought back to market.