SEBI Committee recommends separation of roles for Chairman and MD & CEO, 50% independent directors on board
The Uday Kotak Committee set up by SEBI (the third such committee set up by SEBI over the last two decades) has recommended separation of powers of the chairperson or leader of the board) and chief executive and managing director (CEO/MD) or leader of the management, in phased manner to provide a better and more balanced governance structure. The Committee has recommended limiting directorship to a maximum of eight in listed companies. In addition, the Kotak Committee says from 1 April 2019, at least half of the board of directors should comprise of independent directors.
 
"After deliberation, the Committee believes that the time is right in India to introduce a separation of the roles of the Chairperson and the CEO/MD for listed entities. The Committee observed that such separation, at least at the stage of introduction of the construct, may be more relevant where public shareholders constitute a large portion of the shareholding of a company. In this regard, the Committee considered various thresholds and concluded at least 40% of public shareholding would be an appropriate threshold. Further, in view of the fact that this would require a significant transition from the existing requirements, the Committee believes that listed entities should be given sufficient time to undertake such a transition," the Report from the Kotak Committee, submitted to SEBI says.
 
The Committee recommended that from 1 April 2020, all listed companies that have public shareholding of 40% or more will have a chairperson, who is non-executive director. Once implemented, this will remain in effect even if the public shareholding of the company falls below the threshold level of 40%. "After 2020, if deemed fit by SEBI," the Committee says, "the above sub-regulation may be modified and from 1 April 2022, chairperson of each listed company would be non-executive director."
 
To improve governance, the Committee recommended that every listed entity, irrespective of whether the Chairperson is executive or non-executive, may be required to have at least half its total number of directors as independent directors. "However, given that this may require significant changes to the composition of the boards, the Committee felt that appropriate transition time should be provided for effecting such change. At least half of the board of directors should comprise of independent directors from 1 April 2019, for the top 500 listed entities, determined on the basis of market capitalisation, as at the end of the immediately preceding financial year; and from 1 April 2020, for all listed entities," the Report says.
 
Recommending to limit number of directorships an individual can hold to eight listed companies, the Kotak Committee says, "No person shall hold office as a director, including any alternate directorship, in more than eight listed entities at the same time of which independent directorships shall not exceed seven, with effect from 1 April 2019 and not more than seven listed entities with effect from 1 April 2020 provided that any person who is serving as a whole time director or MD in any listed entity shall serve as an independent director in not more than three listed entities."
 
The Committee says it observed that while aspects relating to the composition and role of the board of directors of listed entities have been subjected to gradual reform, a holistic re-assessment is required to further strengthen the same. 
 
"Accordingly, this review by the Committee and the attendant recommendations seek to address aspects relating inter-alia to the size of the board and its diversity, separation of the roles of chairperson and executive management, attendance of directors at board meetings, ongoing updation of knowledge of directors and disclosure of their skills or expertise," the Report says.
 
Here are other major recommendations of the Committee...
 
  • For any listed entity, a minimum of six directors should be required on the board of directors.
 
  • Every listed entity have at least one independent woman director on its board of directors.
 
  • From 1 April 2018, if a director does not attend at least half of the total number of board meetings held over the Relevant Period, his or her continuance on the board shall be subject to ratification by the shareholders at the next annual general meeting 
 
  • Board of directors of every listed entity should be required to list the competencies or expertise that it believes its directors should possess
 
  • Insert a provision requiring a special resolution for listed entities for the appointment or continuation of non-executive directors (NEDs) on attaining the age of 75 years for the relevant term
 
  • Minimum number of meetings of board of directors be increased to five every year
 
  • Quorum for every board meeting of the listed entity should be a minimum of three directors or one-third of the total strength of the board of directors, whichever is higher, including at least one independent director
 
  • Board of directors should be updated on regulatory and compliance changes at least once every year
 
  • An interaction should be required between the NEDs and senior management at least once every year

 

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COMMENTS

Joseph Pereira

1 year ago

I fully agree with the recommendations.
Long overdue; there are yet many family related companies ,who yet " manage" to do what they feel suits them.
In general ,MNC's are more compliant.
I know from experience having being a Executive Director of a large MNC and heard/read about the other companies.

Murgie Krishnan

1 year ago

Independence of board directors has been taken to mean only that there is no conflict of interest arising from financial or family ties. To get any such director to also take interest needs adequate compensation, which can create a personal financial interest where none existed before. He who pays the piper calls the tune, regardless of whether we're considering firms paying auditors, consultants or directors. Nitin Nohria was hardly a special case. For a better chance at an independent monitor, we need to consider an alternative way of matching directors to companies that is not itself fraught with more problems than benefits. Term limits for directors, together with some attempt at measuring directors' performance, could help. A director's incentives should not be driven by what he can get in future from the company where he is a director, but from some future directorship at an unrelated place. How do we create the kind of reporting and institutional framework needed to create such a market for corporate directors?

Making Markets Safer
Over the past 25 years, the market regulator has done many things to make secondary market safer for investors. Trade guarantees protect us from the follies of brokers. Brokerage agreements are comprehensive and the use of clients’ funds very strictly monitored. Investors receive transaction alerts, both by email and text messages, from the custodian and the stock exchanges to keep track of their trades. And yet, only recently, Aamrapali Aadya, a Delhi-based brokerage firm, still managed to divert Rs55 crore of client’s money and defaulted. Brokerages like Kassa Finvest, Unicorn Securities, Vasanti Securities, Royal Securities and another, have also defaulted, mainly due to excessive speculation in the derivatives market. In most cases, brokers have misused clients’ funds. They have also sold shares held in investors’ depository accounts. Investors’ losses from such fraud run into hundreds of crores of rupees. What cannot be recovered will be paid out of investor protection fund created by the exchanges. It is now reported that the secondary market advisory committee of SEBI is likely to recommend direct exchange of securities and payments into investor’s accounts, either through custodians or clearing houses of stock exchanges. The move is aimed at ensuring that brokerage houses do not handle investors’ money but only execute transactions and perform KYC (know your customer) formalities. 
 
Until this happens, the actions of a few bad apples are giving the industry a bad name. A broker can sell investors’ shares held in a depository account because he holds a power of attorney (PoA), or the investor agrees to allow the shares to be transferred to the broker’s pool account (into which shares are pooled for delivery before each settlement), or by perpetrating a fraud on the investor and providing false reports. An interesting memo from the investment advisor stalwartvalue.com explains exactly how investors are cheated and why. Here is an edited version of the key points which will help keep your money safe. 
 
Brokers lure clients by offering interest on securities as high as 7%-10% if they agree to keep their securities in his pool account. This allows a broker to get a higher margin from the exchange and take bigger bets in the derivatives market. Sometimes, a trusted broker or a rogue employee ends up violating investors’ trust when one wrong gamble puts their business on the line. The box below offers some excellent best practices sent out by Stalwart Value.
 
Keep Your Trading Account Safe
 
1. Don’t risk your entire portfolio to save tiny brokerage. Operate only with well-known national brokers who are financially strong and have robust systems even if you have to pay 5 or 10 basis points extra brokerage.
 
2. Never allow the broker to transfer your DP (depository participant) holding to the pool account. Don’t fall prey to any scheme of making money on your DP holding.
 
3. Never share your online trading password with anyone and keep updating it at regular intervals.
 
4. Reconcile the financial and demat ledger at regular intervals, at least every month, just the way you do with our bank accounts.
 
5. A demat account is like your bank account; it is easily cashable. To avoid that, you can even lock/freeze the shares. You can even have two DP accounts, one as the core for long-term holding and the other as the satellite for trading/IPO (initial public offer), etc.
 
6. Some investors even open and manage the demat account through their bank and have only trading through a broker.
 
7. Make sure your email address and phone number registered with NSDL/CDSL, are up-to-date, and you are receiving trade notifications. If there is any discrepancy, immediately file a complaint with the broker’s compliance officer and also register one with SEBI at SCORES (SEBI Complaints Redress System).
 
8. Avoid keeping too much cash in your trading account. Though it reflects as credit in your trading account, that money is actually lying in broker’s bank account. It is best to park surplus cash in a liquid mutual fund.

 

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COMMENTS

Vaibhav Dhoka

1 year ago

SEBI's action were never investor oriented there fore frauds and cheating took place very often.All forums actions are and were to safeguard brokers even though primafacia fraud is noted.

RBI to raise FPIs' investment limits in government securities
The Reserve Bank of India (RBI) on Thursday said it will raise foreign portfolio investors' (FPIs) investment limits in government bonds for the next quarter October-December 2017.
 
According to an RBI notification, the limit will be raised by Rs 8,000 crore in central government securities and Rs 6,200 crore in state development loans. 
 
"The revised limits will be effective from October 3, 2017," the RBI notification said.
 
"The operational guidelines relating to allocation and monitoring of limits will be issued by the Securities and Exchange Board of India (SEBI)."
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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