The Securities and Exchange Board of India (SEBI), to further tighten corporate governance norms, has proposed tougher guidelines for listed companies to make their functioning transparent and to enhance investor's trust in the capital market.
The consultative paper on "Review of Corporate Governance norms" has suggested following guidelines:
a) The splitting of the post of chairman-cum-managing director thus giving greater responsibilities and powers to independent directors and to avoid concentration of power with one person. This may lead to changes in the structure of a large number of Indian companies, mainly PSU and family-owned firms, where one person holds the position of chairman-cum-managing director (CMD).
b) The appointment of independent directors should be done only by minority shareholders, such directors should be formally trained to be on company boards and they should also be regularly evaluated for their performance by an exam, under National Institute of Securities Markets (NISM), a training body under SEBI
c) SEBI is also aiming to change Clause 49 of the listing agreement between companies and stock exchanges to align it with the proposed Companies Bill. Listing agreement deals with the rules that all listed companies should adhere to remain listed on the bourses. These rules, although aimed at making the Indian market a safer place in terms of corporate governance, could lead to shortage of good independent directors since remunerations for these people may not commensurate with the duties and responsibilities.
d) SEBI also proposed that while resigning, an independent director should disclose the reasons for his/her decision.
e) The board should eliminate policies that promote excessive risk-taking for the sake of short-term increases in stock price performance and ensure that a risk/crisis management plan is in place.
f) It has proposed mandatory disclosure of ratio of remuneration paid to directors and their median staff salary.
The market regulator has also suggested hefty penalties for non-compliance of the revised corporate governance norms. Stating that delisting would affect investors and prosecution was a costly and time-consuming process, SEBI, to strengthen the monitoring of the compliance, has suggested carrying out of corporate governance rating by credit rating agencies, inspection by stock exchanges/ SEBI for verifying the compliance made by the companies.
The consultative paper on "Review of Corporate Governance norms" has suggested following guidelines:
a) The splitting of the post of chairman-cum-managing director thus giving greater responsibilities and powers to independent directors and to avoid concentration of power with one person. This may lead to changes in the structure of a large number of Indian companies, mainly PSU and family-owned firms, where one person holds the position of chairman-cum-managing director (CMD).
b) The appointment of independent directors should be done only by minority shareholders, such directors should be formally trained to be on company boards and they should also be regularly evaluated for their performance by an exam, under National Institute of Securities Markets (NISM), a training body under SEBI
c) SEBI is also aiming to change Clause 49 of the listing agreement between companies and stock exchanges to align it with the proposed Companies Bill. Listing agreement deals with the rules that all listed companies should adhere to remain listed on the bourses. These rules, although aimed at making the Indian market a safer place in terms of corporate governance, could lead to shortage of good independent directors since remunerations for these people may not commensurate with the duties and responsibilities.
d) SEBI also proposed that while resigning, an independent director should disclose the reasons for his/her decision.
e) The board should eliminate policies that promote excessive risk-taking for the sake of short-term increases in stock price performance and ensure that a risk/crisis management plan is in place.
f) It has proposed mandatory disclosure of ratio of remuneration paid to directors and their median staff salary.
The market regulator has also suggested hefty penalties for non-compliance of the revised corporate governance norms. Stating that delisting would affect investors and prosecution was a costly and time-consuming process, SEBI, to strengthen the monitoring of the compliance, has suggested carrying out of corporate governance rating by credit rating agencies, inspection by stock exchanges/ SEBI for verifying the compliance made by the companies.
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