Kotak panel proposals get mixed reactions

Tanya Thomas Mumbai | Updated on January 08, 2018

While corporate lawyers and senior executives in India have welcomed the broad outlines of the corporate governance proposals by the Uday Kotak-led committee to SEBI, they believe that some specific proposals might be dicey to implement.

“Take the proposal that the role of the Chairman and the Managing Director should be separate,” said Samir Paranjpe, Partner, Grant Thornton India LLP.

“There are both pros and cons to this proposal. For instance, this will definitely create better checks and balances within the management structure. But it also runs the risk of of creating conflict on the board with twin power centres. Some of the biggest companies in India are run by individuals who have taken on both roles.” Harish Mariwala, Chairman, Marico Ltd, used to be the FMCG company’s MD as well till 2014, when he stepped down and promoted Saugata Gupta to the role as part of a management shuffle. He said: “I think this is a debatable point. I’m not too much in favour of this recommendation. Sometimes you can have one person taking on both roles, or you could have two individuals for the two roles, but one is just a yes-man. It’s really hard to force rules in this regard.”

Given India Inc’s track record in bypassing regulations that it isn’t fond of, how well and how soon these proposals canbe implemented remains to be seen.

A diverse board

One of the main thrusts of the committee’s recommendations to SEBI was that Indian boards need more diversity and more independence from the management they are meant to oversee.

The proposals include: every board must have at least six directors, with half of the board strength being independent directors. It has called for bringing in more gender diversity into boards with the mandatory woman director being necessarily an outsider and not part of the company or the promoter family. It has also called for more comprehensive disclosures by companies and immunity granted to whistle-blowers.

Mariwala believes the general spirit of the proposals are in the right direction. “The quality of governance is important to protect the interests of Indian shareholders. It’s very common in India for promoters to put their own interests first ahead of those of shareholders. But whatever rules you bring in, people who don’t want to comply will always a find a way to do so.”

One of the recommendations for the appointment of independent directors is for the board to apply a strict test that defines independence. “But for a promoter who wants to bypass this, he can appoint an acquaintance. I think markets should value companies with better corporate governance practices with higher pricing multiples,” added Mariwala

Changing environment

The general movements in the recent past – SEBI getting stricter, the introduction of insolvency laws, moving increasingly towards electronic money transfers – they are all heading towards creating a more ethical environment for business, said Anand Desai, Managing Partner, DSK Legal. “With Indian companies making more overseas acquisitions, with more investments, including private equity deals happening in India, we’re definitely seeing more professionalism in corporate behaviour.”

Critics argue that it is often difficult to find the right talent to fill board seats. But to the contrary, Desai said: “When it first became mandatory for companies to have a company secretary, industry had similar objections – that there just weren’t enough company secretaries available for them to hire. They would get away by publishing a small ad in a newspaper and say we could not find anybody qualified. But we’ve come a long way from that now.”

Published on October 09, 2017

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