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those established overseas, while listed entities should put in place proper regulatory framework while sharing unpublished price-sensitive information with promoters or any other significant shareholders, according to a panel.
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 disclosures requirements related to abrupt resignation of independent directors and auditors should be put in place.
These are some of the recommendations made by the committee on corporate governance established by the Securities and Exchange Board of India (SEBI) under the chairmanship of Uday Kotak.
ADVERTISEMENT
“The committee is of the opinion that the audit committee should also review the utilisation of funds of the listed entity infused into unlisted subsidiaries, including foreign subsidiaries,” stated the report.
The committee recommends this requirement in instances wherein 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.”
This assumes significance since an order issued in January barred Vijay Mallya and six other entities from the securities market after a probe found that funds from United Spirits were diverted to group companies, including Kingfisher Airlines.
ADVERTISEMENT
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the information rights of certain promoters and significant shareholders to prevent any abuse and unlawful exchange of unpublished price sensitive information (UPSI).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 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 other recommendations related to the role of independent directors and the board of the company, the committee has proposed disclosure of the expertise of the directors being appointed, increasing the number of board meetingss 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 the effectiveness of corporate governance in India, implementation would require fundamental changes on multiple fronts.
“The recommendations around having at least six directors on the board, 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.