Kotak panel bats for ‘transparent’ boards

Our Bureau Mumbai | Updated on January 08, 2018

Wants info flow to owners legitimised

The Committee on Corporate Governance headed by Uday Kotak has proposed an overhaul of the existing rules aimed at strengthening the role of independent directors and bringing more transparency to the functioning of boards. This assumes significance in the light of recent boardroom battles at Tata Sons and Infosys.

One of the key recommendations made by the committee is for an amendment to provide an enabling transparent framework to regulate the information rights of certain promoters and significant shareholders. In the Tata-Mistry battle, one of the allegations made by Tata Sons’ former Chairman Cyrus Mistry was that sensitive information was being shared by the company with Ratan Tata. While Tatas denied the allegation, the current rules prohibit any communication or procurement of unpublished price-sensitive information.

The Committee observed that information sharing with promoters and significant shareholders occurs in the “shadows” in the absence of a channel legitimising such information flow.

“The Committee members felt that the ground realities are at substantial variance from the legal framework... (the) regulatory framework should be amended... to reduce subjectivity and provide clarity for ease of business, along with appropriate... checks... to prevent any abuse...,” the Commitee report said. This provision may be kept optional, it added.

The other key proposal is to separate the role of Chairperson and MD/CEO at listed entities with more than 40 per cent public shareholding with effect from April 1, 2020. SEBI regulations do not mandate a separation of these posts.

“The separation of powers of the chairperson (i.e. the leader of the board) and CEO/MD (i.e. the leader of the management) is seen to provide a better and more balanced governance structure by enabling better and more effective supervision of the management,” the report said. After 2020, it added, SEBI may examine extending the requirement to all listed entities with effect from April 1, 2022.

The committee also proposed several measures to strengthen the role of independent directors, which has come under scrutiny recently. One of the proposals is to keep out relatives of promoter group from occupying the independent director’s place on the board. “Committee noted that there were some instances of persons who are relatives of promoters being appointed as independent directors. It was therefore concluded that the net of exclusions be appropriately expanded to avoid the appointment of family associates as independent directors,” it said.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on October 05, 2017
This article is closed for comments.
Please Email the Editor