Sebi's plans may hit 800 companies

Mumbai: More than 800 companies listed on the National Stock Exchange (NSE) would be required to reconstitute their board, if the Securities and Exchange Board of India (Sebi) implements the recommendation of the Uday Kotak committee on corporate governance.

According to Prime Database, around 256 companies accounting for 15 per cent of the NSE listed firms would have to increase the size of their board to six while 326 companies would be required to change the composition of the board to ensure at least 50 per cent of the total number of directors are independent.

With regards to the proposal of having at least one-woman independent director, as many as 637 companies would be required to appoint a woman director if the recommendations was to be implemented. 

The Sebi committee, which submitted its report last week, had suggested a major overhaul of the existing corporate governance norms to improve the effectiveness and functioning of the corporate boards in India.

The major recommendations were directed at ensuring independence in spirit of independent directors and their active participation, improving safeguards and disclosures pertaining to related party transactions and improving the effectiveness of board evaluation process among others. 

If the roles of chairperson and MD or CEO are segregated as recommended by the committee, an analysis done by Prime Database showed that about 640 companies would have to reconstitute their board as they have the same person as chairperson and MD.

On the other hand, chairpersons of 860 listed firms will have to vacate his or her office if the regulator accepts the proposal to have a non-executive director as chairperson of the board. 

The committee had also proposed that all listed firms need to make disclosure detailing the reasons for the resignation of an independent director prior to the expiry of the term. According to Prime Database, as many as 2,706 independent directors have vacated their office mid-way since January 1, 2014. In 76 per cent of these cases, no reason was provided for their sudden exit.    

The committee noted that companies that exhibit sound corporate governance generate significantly higher returns when compared to companies that exhibit poor corporate governance with well governed companies across the world commanding a premium of anywhere between 10 – 40 per cent more than their not so well governed counterparts.