The market regulator has accepted most recommendations of the Kotak Committee which had submitted a report to improve governance standards in listed Indian firms.
Among the approved recommendations was splitting up the role of chief executive officer, managing director, and chairperson for the top-500 listed firms from April 2020, according to a statement by the Securities and Exchange Board of India. Another was reducing the maximum number of directors in a listed firm to 8 from 10 by April 2019. The number will have to be brought down to 7 a year later, the statement said.
The suggestion to split the top leadership roles was aimed to “sharpen the distinction between governance of boards and management of companies”, Uday Kotak, chairman of the panel, had said earlier.
Firms will also have to disclose how they utilise funds raised from institutional share sales and preferential issues. They’ll also have to disclose all information about their auditor including credentials and the fee they charged.
Disclosing quarterly financial results will be made mandatory from 2019-20. Listed firms will also have to disclose more information about related party transactions, and other related parties will be allowed to vote against such transactions.
The market regulator also accepted expanding the eligibility criteria for independent directors, and enhancing the role of the audit committee, nomination and remuneration committee and risk management committee.
SEBI's approval comes after a 23-member panel led by Kotak had submitted their suggestions in October last year. The suggestions were given after 30 meetings in the four months from June 2. The regulator then invited public comments on the suggestions. The panel had called for bigger boards, more independent directors, increasing female board members among many other recommendations.
The Corporate Affairs ministry, however, noted its disapproval in a letter to the panel. It said that SEBI is intruding on matters that have been core company law principles and seeking to expand is hold over unlisted firms. It added that the panel's reccomendations would also result in multiple jurisdictions and hurt ease of doing business.
SEBI finally accepted the suggestions, some of them with modifications. It returned 18 recommendations.
Here are the recommendations that SEBI accepted with modifications:
- The top 1,000 listed firms by market capitalisation will have to have minimum 6 directors by April 1, 2019. For the ones in the top 2,000 the deadline is April 1, 2020.
- The top-500 firms will need to have at least one female independent director by April 2019. The deadline for firms in the top-1,000 is April 2020.
- At least one-third of the board three members, whichever is higher, will be required to conduct board meetings. For the top 1,000 firms the deadline is April 2019, while for the top 2,000 firms it is April 2020.
- The top 100 entities will also have to conduct annual general meetins within five months after the end of 2018-19.
- Annual general meetings will have to be webcast compulsorily by the top 100 listed firms from April 2019.
- Shareholder approval will be required for making royalty payments to related parties that exceeds 2 percent of the consolidated turnover.