By Institutional Investors Advisory Services India Limited
We welcome SEBI’s new corporate governance norms (CG norms), which were released after SEBI’s board meeting Thursday, and believe the new norms are a forward step in establishing a better governance framework for corporate India.
Clarity and transparency of financial statements is critical to investor confidence. In this context broadening the definition of related party transactions, and creating greater oversight over such transactions via a prior approval from either the audit committee or shareholders, will increase chances that such transactions are undertaken at arm’s length.
It will also now be far easier for minority shareholders to have their say with the implementation of e-voting for all resolutions for the top 500 companies (by market capitalization).
Till now resolutions were usually being passed at annual general meetings by a show of hands, which meant votes were counted based on shareholders being physically present. With the implementation of e-voting, investors can now truly vote their shareholding without undertaking any ‘AGM tourism.’
The CG norms also bring in the much-needed focus on the board of directors, its composition and its operations.
Curtailing the terms of independent directors to not more than two terms of five years each, having a woman director on board, not counting nominee directors as independent and not allowing stock options to independent directors are some of the measures that have brought greater alignment between the Listing Agreement and the Companies Act 2013.
An annual appraisal of directors’ performance will increase focus on the board’s functioning and mandating succession planning will ensure companies think ahead.
A summary of SEBI’s CG norms vis-à-vis the Companies Act 2013 is given below:
| Serial no | Proposals approved in SEBI meet | Companies Act and Draft Rules |
| 1 | Independent director can be on the board of maximum 7 listed companies and 3 in case the person is serving as a whole time director in a listed company | Ten public companies. No separate provision for listed companies. |
| 2 | Whistle blower policy made mandatory | Yes |
| 3 | Succession Policy | Not specified |
| 4 | Independent director: max two terms of 5 years each | Yes |
| 5 | ID tenure to be computed on retrospective basis | It has been specified that it should not be applied retrospectively |
| 6 | No stock options for ID | Yes |
| 7 | Nominee director not to be treated as independent | Yes |
| 8 | Prior approval of Audit Committee for all material Related Party Transactions (RPTs) | Not specified |
| 9 | Performance evaluation of Independent Directors and the Board of Directors | Yes |
| 10 | Separate meeting of Independent Directors | Yes |
| 11 | Constitution of Stakeholders Relationship Committee | Yes |
| 12 | Enhanced disclosure of remuneration policies | Yes |
| 13 | Approval of all material RPTs by shareholders through special resolution with related parties abstaining from voting | Yes |
| 14 | Mandatory constitution of Nomination and Remuneration Committee. Chairman of the said committees shall be independent. | Yes. Chairman independence not necessary |
| 15 | At least one woman director on the Board of the company | Yes |
| 16 | The scope of the definition of RPT has been widened to include elements of Companies Act and Accounting Standards. | Not clarified |
| 17 | E-voting facility by top 500 companies by market capitalization for all shareholder resolutions | Not mandatory |
| 18 | Providing training to Independent Directors | Not specified |
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