‘Kotak panel proposals to have marked impact on listed firms’

‘Additional remuneration to directors to cost ₹132.63 cr.’

Updated - October 11, 2017 10:48 pm IST

Published - October 11, 2017 10:15 pm IST - MUMBAI

MUMBAI, MAHARASHTRA, 27/04/2017: Uday Kotak, Executive Vice-Chairman and Managing Director, Kotak Mahindra Bank, and Jaimin Bhatt (left), President and Group CFO, at a press conference to announce the bank's fourth quarter and annual results, in Mumbai on April 27, 2017.
Photo: Shashi Ashiwal

MUMBAI, MAHARASHTRA, 27/04/2017: Uday Kotak, Executive Vice-Chairman and Managing Director, Kotak Mahindra Bank, and Jaimin Bhatt (left), President and Group CFO, at a press conference to announce the bank's fourth quarter and annual results, in Mumbai on April 27, 2017. Photo: Shashi Ashiwal

There will be a significant impact on listed companies if all the recommendations of the Committee on Corporate Governance are accepted by the Securities and Exchange Board of India (SEBI).

According to an analysis of the boards of 1,670 companies listed on the National Stock Exchange (NSE) by Prime Database, almost 400 more directors would be required to comply with the requirement of at least six directors on the board of every company.

Board composition

Further, 326 companies would have to change the composition of the board to ensure that at least 50% of the total number of directors are independent. As many as 637 companies would also need to appoint a independent woman director to comply with the recommendations, if accepted.

Last week, the committee headed by Uday Kotak, executive vice-chairman and MD, Kotak Mahindra Bank, submitted a 177-page report to the SEBI which, among other things, recommended changes to the board composition, conduct of independent directors and the role of audit committees.

Additional cost

While the committee had recommended a minimum remuneration of ₹5 lakh per annum for independent directors, as per the analysis, there were as many as 3,755 out of a total of 5,686 independent directors who were paid less than ₹5 lakh in the last financial year.

The recommendation on minimum remuneration to directors would entail an additional cost of ₹132.63 crore for the listed entities, the analysis said.

Further, the committee has recommended that if the remuneration of executive promoter directors is more than ₹5 crore or 2.5% of net profit it should be approved by shareholders. The analysis found that in 2016-17, there were 171 executive promoter directors in 116 companies that earned a remuneration of more than ₹5 crore.

While the committee has recommended splitting the role of a chairperson and the managing director or the chief executive officer, as many as 640 companies (38% of all listed entities) currently have the same person as chairperson and MD/CEO.

Interestingly, since January 1, 2014, as many as 2,046 independent directors resigned without giving a proper reason. The committee has recommended that detailed reasons should be given by directors who resign before the end of their tenure.

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