Indian proxy season

Recommendations were published this week by SEBI panel chaired by Uday Kotak which are designed to radically improve corporate governance practices in India.

The committee on corporate governance was set up in June by the Securities and Exchange Board of India (SEBI) and asked to submit their proposals within four months. Key issues SEBI wanted to address included ensuring the true independence of independent directors;  accounting and auditing practices by listed companies; improving safeguards and disclosures pertaining to related party transactions; improving the effectiveness of board evaluation practices, and enabling investors to fully vote and participate at general meetings.

The report from the committee said that while there had been a number of preceding panels and recommendations in India there was a case for further reform as there continued to be concerned about board diversity, the reliability of disclosures, especially relating to financial statements, the role of independent directors, protection of minority shareholder interests, executive remuneration and related party transactions. There were also global trends, the report said, which India needed to address in its reforms.

Recommendations on board composition include the proposal that there should be six directors on a board, at least one of whom should be a woman, and that the position of chief executive and chairman should be separated initially for companies with at least a 40% public shareholding. The committee has also recommended that if a director does not attend at least half of the total number of board meetings over two financial years on a rolling basis his/her continuance on the board should be ratified by the shareholders at the next annual general meeting.

SEBI governance reforms
India: Major corporate governance reforms proposed

At least half of the board should be comprised of independent directors and the committee has recommended the tightening up the criteria for independence. There also needed to be a continuous assessment of independence and this should form part of ongoing board evaluation.

The committee recommended that the maximum number of listed entity directorships held by a person be brought down to eight by April 2019 and to seven by April 2020.To improve the performance of companies the committee believes that all board members need to bring particular skills and expertise to their role. The committee has recommended that all boards produce a list of the skills and expertise it requires to function effectively in the context of its business and sector and be able to match these the skills and competencies its board members actually have – by 2020 these will be required to be disclosed against named directors.
It has also been recommended that there are a minimum of five board meetings a year and to encourage more long-term thinking aspects like strategy, succession planning, budgets, risk management, environment, sustainability,
governance and board evaluation should be discussed at least once a year.
The committee has recommended that audit committees should meet at least five times a year – up from four currently – and the nominations, remuneration, risk management and stakeholders relationship committees should meet at least once a year. The committee also made recommendations on the role of these committees and their composition.
On the board evaluation, the committee did not believe new regulation was yet appropriate and referred to SEBI guidance publishes earlier this year is being sufficient. However, in relation to disclosures on the board evaluation, the committee suggested there should be reporting on the board evaluation in that year, the disclosure of any actions taken following the previous years’ observations and proposals for any actions for the forthcoming year.
The proposed reforms will be introduced through amendments to SEBI’s Listing Obligations and Disclosure Requirements Regulations. The committee admitted that a number of the proposals would require a considerable amount of time for companies to meet them and so it was proposing an evolutionary approach with changes being introduced over the next three years.
Comments on the recommendations can be sent by email to Shri Pradeep Ramakrishnan: or
Nila Khanolkar: by the deadline of 4th November 2017.
Last Updated: 6 October 2017
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