Flagging concerns about corporate governance lapses, Sebi chief Ajay Tyagi today advocated equal voice for independent and shareholder directors on a company's board even as he emphasised on the need for effective enforcement of rules.
The Sebi chairman asserted that the need of the hour is to have "a back to basics reconceptualisation of what sound corporate governance means" and a debate away from vested interests.
His remarks assume significance at a time when the Uday Kotak panel has suggested sweeping changes to the corporate governance structure at listed companies.
Speaking at an event here, the Sebi chief said shareholders would expect proactive measures from the company's board to further the interest of the firm.
"While doing so, the directors may have to be creative, take chances and may make mistakes as well. In the context of taking these decisions, one important aspect is to ensure that no reasonable suspicion exists that the mistakes made by the board are malafide," he noted.
The observations also come against the backdrop of concerns in certain quarters about the overall functioning of boards in various companies and corporate governance standards.
While shareholder directors may have imminent "conflicts of interest", "independent directors" may not have so much proverbial "skin in the game", Tyagi said, adding that it becomes imperative to ensure that equal say is imparted to the voice of both directors on a company's board.
Noting that such an approach could involve treading a very fine line, Tyagi said that nevertheless, one may have to see that the balance of power or accountability is not tilted in favour of one at the cost of the other as that may compromise the effective functioning of the board.
Rules after rules can be written on good governance, but at the end of day, the same need to be effectively enforced and the "key to good corporate governance lies in effective enforcement", Tyagi stressed.
According to him, the time is right to "do some out of the box thinking" and wondered about a scenario of "democratising the surveillance of companies - a scenario where not only the shareholders but even the other stakeholders act as change agents for the company".
The move towards a "stewardship code" could be a good step in this direction, Tyagi said as he underlined that institutional investors need to play as effective stewards of corporate governance.
Expressing his views, Tyagi admitted that corporate governance with all its underpinnings is an ethical issue at its core.
"... no matter how many rules are prescribed, how many guidelines are issued and how many enforcements actions are taken, in the end, it all boils down to us, as individuals, to uphold the principles of good governance," he added.
He also cited studies that showed well-governed companies worldwide command a premium of anywhere of 10-40 per cent more than their not-so-well-governed counterparts.
"Numerous studies have also indicated that the payoff from good corporate governance manifests both in the operating results of publicly listed companies as well as the market capitalisation of such companies," he added.
Tyagi's speech at an annual corporate governance summit on 'Gatekeepers of Governance' has been put up on Sebi's website.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)