The Securities and Exchange Board of India (SEBI), to further tighten corporate governance norms, has proposed tougher guidelines for listed companies to make their functioning transparent and to enhance investors’ trust in the capital market.

The market regulator, on Friday, came up with a consultative paper on review of Corporate Governance norms and has suggested measures such as rationalising CEO pay packets, better compliance for the benefit of small investors, making whistle blower mechanisms a compulsory requirement and disclosing the same, implementation of an orderly succession planning among others.

SEBI has sought greater powers for minority shareholders and wants companies to bring in diversity of thought, experience, knowledge, understanding, perspective, gender and age in the board of companies.

As per the proposed guidelines, all listed companies must appoint an independent director as a lead director, who could chair the meetings of independent directors and act as a liaison between independent directors and management/board/ shareholder.

“The board should set a corporate culture and the values by which executives throughout a group will behave. The board should eliminate policies that promote excessive risk-taking for the sake of short-term increases in stock price performance and ensure that a risk/crisis management plan is in place,” SEBI said.

“Incentives to the top management should be based on remuneration that aligns with the long-term interest of the company,” it added.

It has proposed mandatory disclosure of ratio of remuneration paid to directors and their median staff salary.

“… on an average, the remuneration paid to CEOs in certain Indian companies are far higher than the remuneration received by their foreign counterparts and there is no justification available to that effect,” SEBI observed.

The market regulator has also suggested hefty penalties for non-compliance of the revised corporate governance norms. Stating that delisting would affect investors and prosecution was a costly and time-consuming process, SEBI, to strengthen the monitoring of the compliance, has suggested carrying out of corporate governance rating by credit rating agencies, inspection by stock exchanges/ SEBI for verifying the compliance made by the companies. The provisions of listing agreement were being converted into regulations for better enforcement, SEBI said.

SEBI has sought public comments on the subject on or before January 31.

“The objective of the concept paper is to entice a wider debate on the governance requirement. While it needs to be ensured that the proposals suggested would not result in increasing the additional cost of compliances by huge margin and that the cost should not outweigh the benefit of listing, at the same time, it is necessary to bring back the confidence of investors back to the capital market, for channelising savings into investment, which is the need of the hour,” it observed.

“Though some of these proposals are already provided for in the Companies Bill, 2012, and the Bill is waiting for Parliamentary nod, it is proposed to advance the implementation of these proposals to listed companies to make them acclimatise to these provisions,” it added.

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