Suggesting a major overhaul of corporate governance norms for listed companies, a Sebi panel today recommended limiting chairmanship to only non-executive directors and appointing at least one woman as independent director.
While the proposal for only non-executive director being allowed to be made chairman would eventually lead to a split in the posts of chairman and managing director, the committee also suggested increasing the minimum board strength to six members and the number of board meetings to five in a year.
The current rules require that there must be one woman on board, irrespective of her being an independent or executive director. They also call for having at least half of board members as independent directors, up from one-third currently.
The suggestions assume significance in the backdrop of alleged corporate governance-related issues at Tata Group and Infosys.
Besides, the panel headed by eminent banker Uday Kotak also suggested a minimum remuneration of Rs 5 lakh per annum for independent directors and a sitting fee of Rs 20,000- 50,000 for each board meet.
It also sought to make it mandatory to seek public shareholders' approval for annual remuneration of executive directors from promoter family if the amount exceeds Rs 5 crore or 2.5 per cent of the company's net profit.
In case of more than one such director, the same condition would apply for aggregate annual remuneration exceeding 5 per cent of the net profit.
The approval of shareholders will be required every year in which the annual remuneration payable to a single non- executive director exceeds 50 per cent of the total annual remuneration payable to all non-executive directors.
The capital markets regulator Sebi (Securities and Exchange Board of India) has sought public comments till November 4 on the panel's recommendations, which run into 177 pages and covers a host of issues.
The panel has suggested at least half of board members to be independent directors at listed companies, while all directors must attend at least half of board meets. It suggested for new disclosure norms, where listed entities would have to give detailed reasons for resignation of an independent director.
The companies should be required to disclose the list of competencies/expertise that its board members actually possess.
Besides, public shareholders' nod would be must for non- executive directors over 75 years of age.
The panel, which submitted its report today, was set up by Sebi in June this year with a view to enhancing the standards of corporate governance of listed entities in India.
The committee consisted of officials from the government, industry, professional bodies, stock exchanges, academicians, lawyers and proxy advisors. The committee was asked to submit its report within four months.
The terms of reference of the committee were to make recommendations to Sebi on various issues including ensuring independence in spirit of independent directors and their active participation in functioning of the company.
Besides, the suggestions are aimed at improving safeguards and disclosures pertaining to related party transactions. They also cover issues in accounting and auditing practices by listed companies and seek to improve effectiveness of board evaluation practices.
The report also seeks to address issues faced by investors on voting and participation in general meetings, and disclosure and transparency related issues.
The panel suggested that all listed entities which have public shareholding of 40 per cent or more at the beginning of a fiscal year should ensure that the chairperson should be a non-executive director from April 1, 2020, while chairperson should be a non-executive director for all the listed companies from April 1, 2022.
It also recommended that the top 100 companies by market capitalisation should webcast their shareholder meeting.
Also, it suggested that the minimum number of audit committee meetings be increased to five every year from the current four. It must review the use of loans, advances and investment by holding firm if it exceeds Rs 100 crore.
The panel recommended that top-500 listed companies should have a risk management committee of boards for cyber security. In addition, listed entities should constitute an information technology committee that will focus on digital and other technological aspects.
Listed firms should have cash flow statement every six months and disclosure of quarterly consolidated earnings should be must. The companies' board should at least once a year discuss succession planning and risk management.
The panel recommended that all the disclosures made by the listed entity should be in a searchable format that allows users to find relevant information easily. It suggested that all disclosures should be in XBRL format.
"The committee is of the opinion that an updated list of all credit ratings obtained by the listed entity be made available at one place, which would be very helpful for investors and other stakeholders," it noted.
The board of directors of a company with more than 1,000 shareholders and any other security holders at any time during a fiscal would have to form a stakeholders' relationship committee for resolving the grievances of stakeholders.
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