New norms to alter shape, dynamics of Indian cos boards: InGovern

 

Sebis new corporate governance norms will alter the shape and dynamics of India Incs boards “if not overhaul it altogether” as several big firms will have to appoint woman independent directors and separate the roles of chairman and MD, says proxy advisory firm InGovern.

According to a report by InGovern, desire to improve corporate governance should elicit from the companies and not from the regulators. Investors? trust on firms would increase if the companies show efforts to enhance without any nudge from external parties.

Giving an analogy from the Indian mythology, InGovern said the government and regulators need to be more like Krishna who shows the good as well as bad path and leaves it up to us to select which path to take and not be either like Kansa (uncle of Krishna) who believed in tyranny or like Ravana, who although wanted his citizen to do well in their lives, was forceful in his administration of the kingdom.

“In the same way, Indian regulators should show ?the good path? by introducing and educating Indian corporates to best corporate governance practices around the world. The responsibility to walk on the good path should be left to the companies themselves,” it added.

Sebi (Securities and Exchange Board of India) has set a deadline of April 1, 2019 for top 500 companies to appoint at least one woman independent director. Besides, the firms will have more time to split the CMD post, for which the deadline is April 1, 2020.

The new rules came after Sebis 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.

Under the new norms, top-500 companies will have to get on board at least one woman independent director by April 2019, while the same for top-1,000 firms will be April 2020.

As per the study, there were 135 board seats occupied by women in the top-100 companies as on March 31, 2017. All the firms from top-100 have appointed a woman director on their boards.

However, there are 21 companies that do not have any woman independent director, including Reliance Industries, HDFC, Indian Oil, Interglobe Aviation, Tata Consultancy Services and Hindalco, the report noted.

Besides, the report noted that there are at least 26 companies have a single person as their chairman and managing director and have to appoint separate individuals before April 1, 2020.

Among such firms are Reliance Industries, Wipro, Coal India, HCL Technologies, Steel Authority of India (SAIL), NTPC, GAIL and Cadila Healthcare.

“The recommendations by Kotak committee on corporate governance to Sebi is going to alter Indian Boards shape and dynamics, if not overhaul it altogether. Boards of many large companies are in noncompliance of the recommendations and have to make the required changes,” it added.

The way corporate governance was introduced and is effected in India suggest that although the companies fare well in “tick-box approach” evaluations, they fall behind when spirit of the law is considered, the report said.

When the requirement of independent directors came, promoters of many companies started examining the legal definition rather than the motive and exploited loopholes by appointing friends and other relatives to their boards.

“When stock options to promoters were forbidden, they rewarded themselves with warrants. When the woman director requirement was introduced, many promoters added their female family members onto the boards. When tenure restrictions for independent directors were introduced, they kept their long serving directors for one more term of 5 years,” it added.

These instances suggest whatever rules or guidelines have been introduced to enhance corporate governance, companies and their promoters have always tried to exploit possible loopholes to their advantage, InGovern noted.

“The tick-box compliance approach set by the regulators has not been fully able to make companies adopt good corporate governance practice in its truest sense,” it added. PTI SP SP BAL BAL.

Link: India Today- May 14, 2018