Checking the boxes

The large-scale changes proposed by the Securities and Exchange Board of India (Sebi) panel, headed by Kotak Mahindra Bank Vice-Chairman and Managing Director Uday Kotak, on corporate governance are likely to impact almost all listed companies. While more than 50 per cent of listed firms already adhere to the new standards prescribed in terms of composition of boards, there are several areas such as sharing of sensitive information with promoters or setting up of more board committees and introducing systems to enable greater participation of investors at board meetings, which all companies will have to gear up to. In the past, India Inc has expressed displeasure over mounting regulatory obligations on listed companies. Some have even raised doubts over whether the committee has overstepped its brief with some of its recommendations.

Experts don’t see any legal hurdles in implementing most of the proposals made by the committee. “Sebi has enough legislative powers to implement the corporate governance norms in listed companies,” says Lalit Kumar, partner, J Sagar Associates. Ankit Singhi, partner, Corporate Professionals, adds that since the committee has taken all stakeholders, including the Ministry of Corporate Affairs (MCA), exchanges and audit firms on board, the proposals have been thought through.

Shriram Subramanian, managing director, In Govern Research Services, a proxy advisory firm, believes the recommendations are “incremental in nature and are easily implementable”. Thecommittee has prescribed a phased timetable between 2018 and 2020 for implementing various recommendations in ordertoprovideenoughtimetocompaniesto“adjust”.

Advocate and independent counsel Somasekhar Sundaresan, too, feels there is nothing materially disruptive about the board composition requirements. “I feel most will be able to comply and check the relevant boxes. Whether that would lead to better governance, I am not sure,” he adds.

However, there are some proposals where implementation could be a challenge, say legal experts. “These are substantial suggestions that could have wide implications on the Indian listed companies,” says Kumar. Indian companies would need more time to understand these implications, he adds.

Some feel the proposals such as splitting the position of chairperson and managing director (MD) or chief executive officer (CEO), appointing only a non-executive director as chairperson and roping in more independent directors could be tough to implement. “The proposal related to splitting the position of CMD (chairman and MD) will severely affect a lot of listed companies as it will be difficult for promoters to let go of this position,” says Singhi.

However, the proposal to put in place a mechanism to legitimately provide inside information to a promoter could turn out to be a game changer, says Sundaresan. “For now, there is nothing to identify promoters as eligible to receive information. When a promoter legitimately has access to inside information he would become an insider,” he adds.

The suggestions could have wide implications on Indian listed companies