BUSINESS

SEBI for overhaul of board governance

The regulator may introduce a public consultation process on the issue.

The regulator may introduce a public consultation process on the issue.  

Markets regulator SEBI is in favour of a major overhaul of the way boards of listed firms discharge their duties, including for appointment and removal of directors, and also wants their audit committees to be empowered to identify future risks.

There is also a need for “greater tolerance” and transparency in discussions and decisions taken at the board level and by various board committees of listed companies, but the regulator would prefer them to adopt best global practices in this regard voluntarily rather than being dictated to do so with a new set of stringent rules, an official said.

While a ‘guidance note’ was issued last month by the Securities and Exchange Board of India on board evaluation at listed companies, there is a view that SEBI should come out with a new set of regulations to ensure greater compliance.

Detailed note

The regulator may soon come out with a further detailed guidance note while it is also mulling launching a public consultation process to understand whether there is a need for a new set of rules and what those could be, a top official said.

The move assumes significance in the wake of the recent boardroom battle at the Tata group and the controversy surrounding the reported differences between some promoters and the top management at Infosys — both of which played out in a big way in full public glare and forced SEBI and the government to keep a close watch to safeguard the interests of minority investors and other stakeholders — as also the message going to the foreign investors.

“The prominent view within SEBI as of now is that the concept of board evaluation is very nascent in India and forcing the companies to follow a new set of rules in this regard may not be warranted at this stage,” a top official said, adding that the decision can be reviewed after taking into account response of the companies to the guidance note.

Also, since the regulator itself will go through a leadership change soon, with senior IAS officer Ajay Tyagi set to take charge as the next SEBI chief on March 1, a final decision on whether to replace the guidance note with a new set of rules could be taken later.

Corporate governance has been a key focus area, with a huge emphasis on safeguarding the interests of minority shareholders in listed companies, during the six—year tenure of current chairman U.K. Sinha. The proposed moves will also take into account the suggestions made in this regard by the regulator’s International Advisory Board, which was set up during Mr. Sinha’s tenure at SEBI to advise it on best global regulatory practices and evolution of various policies.

The IAB suggested that a matrix of expertise may be introduced to make the boards diverse, balanced and in tune with the requirements for effective functioning of the company. It has also called for “full transparency” in board appointments and removal process.

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