India’s listed corporates will have to initiate quick action to get on board more directors, including a woman, if they to ensure compliance with the Securities and Exchange Board of India (SEBI)’s new corporate governance norms.
While SEBI has given companies time to comply with the latest rules many firms are currently non-compliant and would need to act fast to conform including ensuring that the role of a chairperson and managing director is separated within the next one year.
There are a total of 65 companies that will have to increase the number of independent directors by April 1, 2019, while as many as 165 companies of the top 500 entities will have to separate the role of MD or chief executive officer from that of the chairman, according to data from Prime Database.
Further, there are at least 155 companies among the top 500 listed ones that would have to appoint a woman director by April 1, 2019, and if the universe of companies is expanded to the top 1,000 then 336 companies will have to include a woman director in the board by April 1, 2020.
On Wednesday, the capital markets regulator approved most of the recommendations of the Uday Kotak Committee that was formed to suggest ways to strengthen corporate governance at listed entities.
The market watchdog decided to reduce the maximum number of directorships for individuals from 10 to seven in a phased manner while expanding the eligibility criteria for such directors. The new norms also require at least one woman independent director in the top 500 listed entities by market capitalisation by April 1, 2019, and in the top 1,000 listed entities, by April 1, 2020.
The list of companies that will have to induct a woman director within the next one year include Ambuja Cements, Avenue Supermarts, Bharti Airtel, Castrol India, DLF, Fortis Healthcare, Glenmark Pharmaceuticals, Godrej Industries, HDFC, ICICI Prudential Life Insurance and Reliance Industries along with most of the banking entities like State Bank of India, Andhra Bank, Bank of India, Canara Bank and Central Bank of India.
“All decisions have been taken with a view to enhance corporate governance but governance cannot improve only on the basis of law. One needs to ensure that the implementation is done religiously,” said J.N. Gupta, managing director, Stakeholders Empowerment Services (SES), a proxy advisory firm.
Meanwhile, companies that currently have no segregation between MD/CEO and chairperson include Adani Ports, BPCL, BHEL, Coal India, General Insurance Corp., Wipro, Hero Motocorp, HPCL, TV Today Network, RIL and PVR among others.
The three-tier structure of a company that includes shareholders, board and the management need to be separate and independent of each other and hence SEBI has segregated the roles of MD/CEO with that of the chairman.
Audit panel’s role
SEBI has also enhanced the roles of a company’s audit committee, nomination & remuneration committee and risk management committee. The Kotak panel had recommended enhanced disclosures on auditor’s credentials, audit fees and reasons for resignation of auditors.
“The government recently notified norms for appointment of chairperson and members of National Financial Reporting Authority,” said Sumit Agrawal, a former SEBI official and regulatory lawyer. “SEBI’s decision to make mandatory disclosure of auditor credentials, audit fee, reasons for resignation of auditors, seem to be in sync with the government's efforts of increasing governance in the audit profession.”
