CORPORATE GOVERNANCE

It seems corporate governance and God have something in

common. Both are remembered in times of crisis.

Following is a point-by-point analysis:

A. Proposals accepted without modifications

So far, Sebi has made public only 10 out of 40 proposals accepted without

modifications. The 10 proposals are as follows:

Reduction in the maximum number of listed entity directorships from 10 to 8 by

April 01, 2019 and to 7 by April 1, 2020

Impact: Currently, only one individual holds 10 director positions; one holds nine and
one holds eight. These three individuals will have to give up their directorships in some
companies.

Expanding the eligibility criteria for independent directors

Impact: Companies will not be able to appoint individuals related to the promoter group
as independent directors. Also, such individuals who would not be able to discharge
their duties independently due to certain prevailing circumstances or situations.

Enhanced role of the audit committee, nomination and remuneration committee

and risk management committee

Impact: The requirement of a risk management committee to be extended to the top

500 listed entities by market capitalization as against current applicability to top 100
listed entities. Also, nomination and remuneration committee will need to have at least
two-thirds of its members' independent directors.

Disclosure of utilization of funds from QIP/preferential issue

Impact: Companies will have to ensure better transparency, appropriate disclosures

pertaining to utilisation of proceeds of preferential issues and QIPs till the time such
proceeds are utilised.

Disclosures of auditor credentials, audit fee, reasons for the resignation of

auditors

Impact: Going ahead, companies will have to give disclosures in relation to the

credentials and terms of appointment of the auditors. Disclosures on fees paid will
prevent companies from paying disproportionately high audit fees in relation to their
assets. The move will ensure more transparency and help investors make informed
decisions.

Disclosure of expertise/skills of directors

Impact: The board of directors of every listed entity should be required to list the
competencies and expertise that it believes its directors should possess. Companies will
have to name the directors who have such skills, expertise, and competence from
financial year ended March 31, 2020.

Enhanced disclosure of related party transactions (RPTs)

Impact: Companies will have to make half-yearly disclosure of RPTs on a consolidated

basis. Strict penalties on those failing to do so. Any entity belonging to the promoter
group of the listed entity and holding 20 per cent or more of shareholding in the listed
entity shall also be a related party.

Mandatory disclosure of consolidated quarterly results with effect from FY20

Impact: Currently, the Companies Act and Sebi Regulations mandate the submission of
consolidated financial statements by a listed entity every financial year. Soon
companies will require to state the same on a quarterly basis.

Enhanced obligations on the listed entities with respect to subsidiaries

Impact: More oversight over unlisted ‘material’ subsidiaries both in India and overseas.
The definition of the term “material subsidiary” could be tightened to include those
subsidiaries whose income or net worth exceeds 10 per cent (from the current 20%) of
consolidated income or net worth.

Secretarial Audit to be mandatory for listed entities and their material unlisted
subsidiaries

Impact: Secretarial audit checks for compliance with all the regulations under various
acts including Companies Act, Foreign Exchange Management Act (Fema) and Sebi
Act.

B. Proposals accepted with modifications

Sebi has made public seven out of 15 proposals it has accepted with modifications.
These include:

Minimum six directors in the top 1,000 listed entities by market capitalization
by April1, 2019 and in the top 2000 listed entities, by April 1, 2020
Impact: Currently, there are 65 companies among the top 1,000 NSE listed-companies
that have less than six board members. These companies will have to appoint more
board members.

At least one woman independent director in the top 500 listed entities by market
capitalization by April 1, 2019 and in the top 1000 listed entities, by April 1, 2020

Impact: 155 out of top 500 and 336 out of 1,000 companies don’t have any women
independent director

Separation of CEO/MD and Chairperson (to be initially made applicable to the top
500 listed entities by market capitalization w.e.f. April 1, 2020)

Impact: Currently 165 out of top 500 NSE-listed companies have same individual as
CEO and chairperson. Some of these companies include Reliance Industries (Mukesh
Ambani), Wipro (Azim Premji), Adani Ports and SEZ (Gautam Adani). Some PSUs
including ONGC and Coal India too have CMD positions.

The quorum for Board meetings (1/3rdof the size of the Board or 3 members,
whichever is higher) in the top 1,000 listed entities by market capitalization by
April 1, 2019 and in the top 2000 listed entities, by April 1, 2020

Impact: Currently, the Companies Act requires a quorum of one-third of the total

strength of the board of directors or two directors, whichever is higher. Going ahead,
companies will need at least 1/3rd of its board or minimum three members (whichever is
higher) to be present for board meetings.