New governance norms come into play

Regulator issues notification to split CMD post; raise minimum board strength to six

The Securities and Exchange Board of India (Sebi) has asked the boards of the companies to split the post of chairman and managing director. The regulator has also asked them to have at least six independent directors, including a woman.

The changes need to be put in place in phases, the Sebi said, while setting a deadline of April 1, 2019 for the independent directors. The companies will have more time to split the CMD post, for which the deadline is April 1, 2020.

The move comes after Sebi’s board in March accepted 40 of the 80 recommendations of the Uday Kotak panel on corporate governance.

The panel had submitted its report to Sebi in October last year. Among the new rules, Sebi has enhanced disclosure of related-party transactions and made mandatory secretarial audits for listed entities and their material subsidiaries.

It asked the top 100 listed companies to webcast annual general meetings These regulations will come in to effect in two phases. Most of the changes will be effective April 1, 2019, and April 1, 2020, Sebi said in a notification.

Under the new norms, top 500 listed entities will have to ensure that the chairperson is a non-executive director from April 1, 2020. It will eventually lead to a split in the post of chairman and managing director.

Currently, several firms have integrated the two positions as CMD (chairman-cum managing director) that overlap the board and the management in some cases, which could cause conflict of interest.

The regulator asked top 500 companies to appoint at least one woman independent director by April 1, 2019. The current rules require that there must be one woman on board, irrespective of her being an independent or executive director. It also asked the top 1,000 listed companies to have minimum six directors from April 1, next year. A person will not hold directorship position in more than eight listed entities from April 1, 2019 and in not more than seven listed firms from from 2020. Further, Sebi said that a person will not serve as an independent director in more than seven listed entities.

With regard to related-party transaction, Sebi said that any person or entity belonging to the promoter group of the listed entity and holding at least 20 per cent stake in the listed firm will be deemed to be a related party.

Besides, shareholder approval will be needed for making royalty or brand payments to related parties exceeding 2 per cent of consolidated turnover.

The new rules also cover issues in accounting and auditing practices by listed companies in order to improve effectiveness of board evaluation practices. Sebi also said companies will now have to disclose details about utilisation of funds raised through qualified institutional placement (QIP) and preferential issues in their annual reports.

New rules also cover issues in accounting and auditing practices by listed firms, to improve effectiveness of board evaluation practices