Audit committees should monitor the flow of funds to unlisted subsidiaries, including those established overseas, while listed entities should put in place proper regulatory framework while sharing unpublished price-sensitive information with promoters or any other significant shareholders, the Securities and Exchange Board of India’s panel on governance has proposed.
Listed companies should also be required to have at least six directors on the board with a minimum of 50% representation of independent directors — including one woman director. Further, enhanced disclosure requirements related to abrupt resignation of independent directors and auditors should be put in place, according to recommendations by the Uday Kotak-headed committee on corporate governance set up by SEBI. “The audit committee should also review the utilisation of funds of the listed entity infused into unlisted subsidiaries, including foreign subsidiaries,” the panel said, adding that the requirement be applicable in instances where the “total amount of loans/advances/investment from the holding company to the subsidiary exceeds ₹100 crore or 10% of the asset size of the subsidiary, whichever is lower.”
The recommendation assumes significance in the wake of SEBI’s January order barring Vijay Mallya and six other entities from the securities market after a probe found that funds were diverted from United Spirits to group companies, including Kingfisher Airlines.
Further, the committee had also proposed a transparent framework to regulate the information rights of certain promoters and significant shareholders to prevent any abuse and unlawful exchange of unpublished price sensitive information (UPSI).
The committee has proposed a formal Access to Information Agreement with such entities. Incidentally, the high profile boardroom tussles in the case of Tata Group companies and Infosys Ltd. saw this issue being deliberated by various stakeholders.
Among recommendations related to the role of independent directors and the board, the panel sought disclosure of the expertise of the directors being appointed, increasing the number of board meetings from four to five every year and capping the maximum number of directorships to seven by April 2020.
Neeraj Gupta, partner and leader Risk Assurance Services, PwC India, said while the recommendations would strengthen corporate governance, implementation would require fundamental changes on multiple fronts.
“The recommendations around having at least six directors...reducing the maximum number of listed company directorships and listing out competencies of every director on the board will impact the supply side,” said Mr. Gupta. “There could soon be a war for talent as corporate India embarks on the search for good independent directors,” he said.
The 23-member committee submitted its 177-page report on Thursday to SEBI, which had invited public comments on the proposed recommendations till November 4.
