To enable listed companies adopt better global practices, SEBI has put out a consultative paper on corporate governance norms. SEBI’s set of 31 proposals focuses on board of directors, risk-management, internal and external audit, fiduciary responsibility of promoters and stronger enforcement with the help of the private sector and institutional investors.
To strengthen company boards, SEBI plans to allow minority shareholders to appoint independent directors.
Also proposed is cumulative voting — shareholders will be allowed to cast all their votes in favour of a single nominee, against the present system of one vote per share.
The regulator has also mooted a formal letter of appointment to non-executive and independent directors, training, treating nominee directors as non–independent, and a minimum and maximum age for directorship.
For independent directors, the proposals mandate two consecutive five-year terms and a three-year hiatus before seeking re-appointment.
Other proposals require independent directors to disclose reasons for their resignation. Clarity on remuneration, performance evaluation, and appointing a lead independent director has also been proposed.
Finally, the proposal also intends to separate the posts of chairman and MD/CEO, enable the creation of a succession plan and make risk-management the responsibility of the board with the onus of implementation on a chief risk officer.
The regulator wants mandatory rotation of audit partners, a compulsory whistle-blower mechanism, and a mandatory remuneration committee with enhanced disclosures and mandatory e-voting on all resolutions.
SEBI has suggested curbing of abusive related-party transactions (RPTs), such as shareholder approval for divestment of major subsidiaries, immediate and continuous disclosure of material transactions).
The market watchdog also recommends enhancing the role of institutional investors to monitor their investee companies and protect shareholder value.
To strengthen monitoring, SEBI has proposed governance ratings, regulator inspection and penalties on the company/board and senior management for non-compliance.
SEBI has invited comments on these proposals by January 31.