Mumbai: The 21-member Uday Kotak panel on corporate governance will meet the Securities and Exchange Board of India (Sebi) for the final time on Thursday and submit its report, three people with knowledge of the matter said.
In all probability, the capital market regulator will put up the recommendations for public comments on Thursday itself.
Mint learnt that a bulk of recommendations are on board evaluation, governance evaluation, increasing accountability and transparency for independent directors and reducing the number of step-down subsidiaries.
Independent directors
The independence of independent directors became an issue of debate when former Tata Sons Ltd chairman Cyrus Mistry complained that many independent directors on Tata group companies were not truly independent and thereby rendering the board less independent of the management. The committee has recommended that there should be rules to prevent appointment of relatives as independent directors.
A survey conducted by Hunt Partners, AZP & Partners and PwC in November 2015 found that 25% of Indian companies have independent directors who are relatives of the owners. A report by Hindu Business Line on 3 October said that the committee recommends that the number of independent directors on the board of a company be increased from 33% to 50%. This was independently verified by Mint.
For government companies, the committee has recommended that the company board has a final say on the appointment of independent directors and not the nodal ministry.
Evaluation
Currently, the boards are required to meet every quarter to discuss the financials of the company. The committee had proposed to increase the number of meetings to five. The fifth meeting would discuss, among other things, whether the company has a succession plan in place, an issue that cropped after the recent boardroom battles at the Tata Group and Infosys Ltd. Other issues that would be discussed in the proposed fifth meeting include adherence to governance standards and strategies for the company.
Separately, the norms for board evaluation would be stepped up to hold the board and independent directors accountable for their decisions. Performance evaluation of directors was a voluntary concept introduced by Sebi in 2004 until the Listing Regulations and the Companies Act made it mandatory.
Step-down subsidiaries
In India, currently, companies that were incorporated before 2000 have a number of step-down subsidiaries—going up to 50-100. This has been a source of concern in identifying who controls these subsidiaries. At times, these are also used as a means to launder money as some of these subsidiaries have shell structures.
In this regard, the Sebi committee will adhere to the ministry of corporate affairs (MCA) circular, issued on 22 September, which has restricted the number of step-down subsidiaries to two. The same will be applicable for listed companies, though prospectively. This is to avoid gaps between the Companies Act and Sebi Act.
Information sharing, disclosures
The Sebi panel is recommending rules to ensure that promoter-driven companies are subject to the same level of transparency as companies with higher public shareholding. At present, annual reports are often not released on company and exchange websites. The Sebi panel is trying to change this by ensuring that annual reports are put up on websites a day after they are released to the shareholders of the company.
The committee has recommended improving the quality of financial disclosures, including those related to party transactions and during initial public offers. The Sebi panel is considering whether auditing can be made a regular task.