Uday Kotak Committee suggests changes in corporate governance rules; Key changes
Sebi has introduced new norms to safeguard and improve the performance of Independent Directors, related party transaction, listed companies and general meetings.
A corporate governance comittee was formed by the Sebi in June 2017, under the chairmanship of Uday Kotak, MD, Kotak Mahindra Bank, with a view to enhance the standards of this regime of listed entities in India.
Uday Kotak, in the report, said, “This report is a sincere attempt to support and enable sustainable growth of enterprise, while safeguarding interests of various stakeholders. It is an endeavor to facilitate the true spirit of governance.Under the leadership of a vigilant market regulator -SEBI, and with the persistent efforts of key stakeholders, corporate governance standards in India will continue to improve.”
Currently, India accounts nearly 3% of world GDP and 2.5% of global stock market capitalisation – with 5,000 listed companies and more than 50 companies in the global Fortune list.
Minimum number of board of directors
The Committee has proposed that now board of directors shall comprise not less than six directors.
Also board of directors shall have an optimum combination of executive and non-executive directors with at least one woman as an independent director and not less than 50% of the board of directors shall comprise of non-executive directors.
Minimum number of board meetings
These board shall meet at least 4-5 times a year, with a maximum time gap of one hundred and twenty days between any two meetings and at least once a year.
Under this meeting, the board shall specifically discuss strategy, budgets, boardevaluation, risk management,ESG (environment, sustainability and governance) and succession planning.
Listed entity shall, at least once every year, undertake a formal interaction between the non-executive directors and the senior management
With effect from April 1, 2018, if a director does not attend at least half of the total number of board meetings heldover the Relevant Period, his/her continuance on the boardshall be subject to ratification by the shareholders at the next annual general meeting.
While from April 01, 2020, listed entities which have public shareholding 40% or more shall ensure that the Chairperson of the board shall be a non executive director, on and from that financial year.
No listed entity shall appoint a person or continue the directorship of any person as a non-executive director who has attained the age of 75 years unless a special resolution is passed to that effect.
Minimum compensation and remuneration
Top 500 listed entities by market capitalisation shall pay compensation to each independent director as Rs 5 lakh per annum, whether through sitting fees or profit linked commissions.
Provided that, this provision will not apply in case of inadequacy of profits in accordance with Section 197 of Companies Act, 2013 - minimum sitting fees for every board meeting of Rs 50,000 for top 100 entities by market capitalisation and Rs 25,000 for next 400 entities.
Sebi stated that annual remuneration payable to such executive director if exceeds Rs 5 crore or 2.5% of the net profits of the listed entity, whichever is higher, the approval of the shareholders under this provision shall be valid only till expiry of term of such director.
Approval of shareholders shall be obtained every year in which the annual remuneration payable to a single non-executive director exceeds 50% of the total annual remuneration payable to all non-executive directors, giving details of the remuneration thereof.