SEBI panel to look into independence of directors

Mumbai: In a bid to further improve the corporate governance standards in listed firms in India, the Securities and Exchange Board of India (Sebi) has constituted a new committee to make recommendations on issues such as ensuring independence in spirit of independent directors and their active participation in functioning of the firm.

The committee has also been asked to recommend measures for improving safeguards and disclosures pertaining to related party transactions and improving the effectiveness of board evaluation practices among others.

The committee, which would be chaired by Uday Kotak, executive vice chairman of Kotak Mahindra Bank has been asked to submit its final report within four months.

Some of the other areas that the committee would be looking into includes issues in accounting and auditing practices by listed companies, issues faced by investors on voting and participation in general meetings, disclosure and transparency related issue and any other matter pertaining to corporate governance in India.

Lot of corporate governance specialists had earlier called for further improvement in governance norms in the wake of the bitter board room battle witnessed in some of the Tata Group companies following the ouster of Cyrus Mistry as the chairman of Tata Sons in 2016.

Additionally, the concerns raised by Infosys founders on certain decisions of the current management had also sparked debate on corporate governance related issues.

“This is a very positive step as there has always been concerns regarding the true independence of independent directors and issues related with related party transactions,” noted Pranav Haldea, managing director, PRIME Database.

While almost all companies are compliant with the norms governing the appointment of independent directors, Mr Haldea said the big question is whether that compliance are in both letter and spirit. “This is one area that has to be revisited,” he said.

On the issue of transparency and fairness in related party transactions, he said such transactions are more prevalent in promoter-controlled firms, which may not be in the best interest of minority shareholders.  

“Most of these issues are very relevant and widely covered in the Companies Act 2013. However, it is time to take stock of the actual ground situation to see whether those regulations are yielding the desired results and take further steps if needed to strengthen the governance standards,” said a senior corporate executive.