Corporate governance can't just be reactive: Sebi chief Tuhin Kanta Pandey

Even small corporate governance lapses can trigger outsized market consequences, SEBI chairman Tuhin Kanta Pandey warns, urging proactive oversight and ethical judgment

Even minor infractions in corporate governance can lead to “amplified consequences” in the capital market, Securities  and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey said on Friday. He stressed that governance cannot just be reactive in an expanding and increasingly complex market where reputational risks materialise quicker than ever before. 

“Many governance failures we have seen in India and globally arose from a mindset that views governance as a procedural burden rather than a strategic asset. Shortcuts were rationalised, disclosures were minimised, and exceptions slowly became the norm,” the Sebi chief said. 

Speaking at an event hosted by the Institute of Company Secretaries of India (ICSI), Pandey said company secretaries play a vital role as they are “often the first to see the gap between regulatory form and governance substance”. “In many cases, governance red flags emerge gradually through recurring related party transactions, inconsistent disclosures or opaque decision making. Identifying patterns, ensuring proper escalation and documenting dissent when required, are not mechanical tasks. They demand professional judgment and ethical clarity,” the Sebi chairman emphasised. 

“The markets can tolerate business risk. What they struggle to tolerate is governance uncertainty, and as the market expands, even small governance lapses can have amplified consequences,” he warned. “It is often said that governance failures are obvious in hindsight. The real test lies in foresight, in recognising early signals and responding before trust is eroded,” he said. “How often does a critical governance issue surface… not as a clear violation, but as a grey area — something that is technically permissible yet institutionally uncomfortable. In such moments, interpretation must be accompanied by informed judgment… Not just a ‘Can we do this?’ approach, but ‘How will this be perceived by investors, regulators and the market tomorrow?” he said. 

Stressing that governance professionals need confidence and “sometimes courage”, Pandey said: “It requires the ability to speak truthfully and respectfully in board rooms where commercial pressures may be high.” Terming it crucial to ensure that the various committees of corporate boards are not just “ceremonial bodies” but “forums for genuine oversight”, the Sebi chief said corporate governance is the foundation for market growth. 

“Corporate Governance in listed companies is often discussed in terms of regulations, board composition, committee structures, disclosures, thresholds. These are, of course, necessary, but governance at its core is not merely about procedural compliance. It's about credibility in how decisions are taken, how conflicts are managed, how information is shared with investors. It is the mechanism through which dispersed shareholders place trust in those who manage their capital and ensures that power is exercised with constraint and discretion is accompanied by accountability,” Pandey underlined. 

Citing the reforms undertaken by Sebi to strengthen governance standards and protect investor interest while reducing friction for compliant listed entities and intermediaries, Pandey said that regulation, however, can only set the framework. “Its true effectiveness depends on how deeply these reforms are internalised and applied in practice by boards and governance professionals,” he averred. 

Looking ahead, Pandey said the role of company secretaries in listed companies will continue to expand, not in compliance volume terms, but in terms of “depth of responsibility”. “Capital markets will grow more complex. Investors will become more discerning. Information will travel faster and reputational risks will materialise quicker than ever before. In such an environment, governance cannot be reactive. The future belongs to professionals who can anticipate risks, guide boards through ambiguity, and uphold institutional integrity, even under pressure,” the Sebi chief concluded.