Ex-chairman calls Sebi's 'minimum info' directive 'inconsistent, laughable'

Capital markets regulator Sebi's recent directive on minimum information has many inconsistencies and is "laughable", former Sebi chairman M Damodaran said on Wednesday.

Addressing an event organised by the Institute of Internal Auditors here, Damodaran said we will not be able to see good governance at companies if there are prescriptive arrangements, and advocated that such practices come from within.

He quipped that the February 14 directive on industry standards on minimum information to be provided for review by the audit committee and shareholders for approval of a related party transaction is a "very elaborate" document.

"Even the tabular statement is several pages long. It has so many things that if you take them seriously, you will have a problem. So it's better to read them, laugh at them and go on with life," the IAS officer-turned-regulator said.

"There are inconsistencies within that document. There are inconsistencies that that document has with other prescriptions from the same regulator," he opined.

Damodaran said the state-run companies also need to improve on adopting good governance, and added that the promoter's standing should not prevent them from doing what is good.

He said even today, there are three very large public sector companies which are still in violation of the prescription that they should have women independent directors. "So much for the climate in which governance is practiced," he rued.

It is unfortunate that compliance is looked at as an item of expenditure and not as an investment which will help ensure that the company will survive in the long term, he said, asking for clear reporting lines where the internal audit function does not report to the chief financial officer but to the audit committee of the board.

Underscoring the importance of the Independent Directors, he cited the case of Satyam board which had independent directors of repute who sided with the promoter to pass off all the ill-fated decisions unanimously despite asking the relevant questions during discussions.

"You need good independent directors on your board to save the promoter from himself or herself. If a promoter wants to save himself or herself, he must get good people on the board. Otherwise, he will self-destruct. Because temptations are many," Damodaran said.