CORPORATE GOVERNANCE

It seems corporate governance and God have something in

common. Both are remembered in times of crisis.

 Following are some of the recommendations of Kotak Committee which are

accepted by the Securities and Exchange Board of India (SEBI) with/ without
modifications which are summarized below;
Composition and Role of the Board

 Minimum Six Directors on Board which shall be applicable to top 1,000 listed
entities by April 01, 2019 and to top 2,000 listed entities by April 01, 2020;
 At least one Independent Woman Director which is applicable to top 500
listed entities by April 01, 2019 and to top 1,000 listed entities by April 01, 2020;
 Maximum number of directorship shall be reduced to eight by April 01,
2019 and shall be reduced to seven by April 01, 2020;
 The listed entities with more than 40% of public shareholding shall separate
the roles of Chairperson and Managing director (MD) or Chief Executive Officer
(CEO) which shall be applicable to top 500 listed entities by April 01, 2020 and
the Chairperson shall be a Non-Executive Director;
 The Quorum for Board Meeting shall be one-third of its total
strength or three directors, whichever is higher, including at least one
Independent director which is applicable to top 1,000 listed entities by April 01,
2019 and to top 2,000 listed entities by April 01, 2020;
 The Board of Directors of every listed entities shall require to list out the
competencies/expertise that it believes that its directors shall possess and actually
possess and disclose competencies of its Board Members against every identified
competency/expertise without disclosing names in the Annual Report for financial
year ending March 31, 2019 and detailed disclosures along with the names of
Directors with effect from March 31, 2020.
Institution of Independent Directors

 The Independent Director shall not be a member of the Promoter

Group and a Non-Independent Director of a company on the board of which any
Non-Independent Director of the listed entity is an Independent Director, cannot be an
Independent Director on the board of the listed entity which was made applicable
from October 01, 2018;
 Appointment of an Alternate Director for an Independent Director shall not
be permitted which came into effect from October 01, 2018;
 Mandatory Directors and Officers (D&O) insurance for Independent
Directors of top 500 listed entities with effect from October 01, 2018;
 Declaration by the Independent Director stating that He/ She meets the
criteria of independence and He/ She is not aware of any circumstance or
situation, that could impair or impact his/her ability to discharge his/her duties which
shall be applicable from April 01, 2019;
 Disclose detailed reasons for resignation of an Independent Director before
the expiry of his/her tenure within seven days of resignation to the stock exchange
which shall applicable from April 01, 2019;
Board Committees

 The Audit Committee need to review the utilisation of loans and/or

advances from/investment by the Holding Company in the subsidiary exceeding
Rs.100 Crore or 10% of the asset size of the subsidiary, whichever is lower which
shall be effective from April 01, 2019;
 Nomination and Remuneration Committee (NRC)shall recommend all
payments made to senior management to the Board of Directors.
 Senior Management shall include all members of management one level below
the Chief Executive Officer (CEO)/ Managing Director (MD)/ Whole Time Director
(WTD)/ Manager (including Chief Executive Officer (CEO)/ Manager, in case not part of
the board) and specifically include the Company Secretary (CS) and the Chief
Financial officer (CFO);
 The quorum for a meeting of the Nomination and Remuneration Committee
(NRC) would be either two members or one-third of the members of the committee,
whichever is greater, with at least one independent director;
 Stakeholders Relationship Committee (SRC)shall consist of at least three
Directors as members with at least one Independent Director. Additionally, the
Chairperson of the Stakeholders Relationship Committee (SRC) shall be present
in Annual General Meeting to answer queries of the security holders;
 Enhanced role of Stakeholders Relationship Committee (SRC) to review the
measures taken for effective exercise of voting rights by
Shareholders and reducing the quantum of unclaimed dividends;
 The constitution of Risk Management Committee (RMC) shall be applicable
to top 500 listed entities and the role of Risk Management Committee (RMC) shall
specifically include Cyber Security which shall be applicable from April 01, 2019.
 Nomination and Remuneration Committee (NRC) , Stakeholders
Relationship Committee (SRC) and Risk Management Committee (RMC)shall
require to necessarily meet at least once in a year.
Monitoring Group Entities and Related Parties
 Where a listed entity has large number of unlisted subsidiaries then the
listed entity may monitor their governance through a dedicated Group Governance
Unit or Governance Committee and a strong & effective Group Governance Policy
may be established which shall be applicable from May 10, 2018;
 Secretarial Audit shall be mandatory for listed entities and their material
unlisted subsidiaries incorporated in India and the report shall be annexed with the
Annual Report which shall applicable from March 31, 2019;
 Shareholders’ approval shall be required for brand payments and/ or royalty
to related parties exceeding 2% of consolidated turnover by the listed entities with
effect from April 01, 2019;
 All material Related Party Transactions shall require an approval of the
shareholders and related party will not be able to vote to approve such resolution
but related parties are allowed to cast a negative vote;
 Half yearly disclosures of Related Party Transactions on consolidated
basis, in a format which is required for Related Party Transactions in Annual Accounts
as per Accounting Standards on the website of the listed entity within 30 days of
publication of the half-yearly financial results;
 Definition of Material Subsidiary revised to mean a subsidiary whose income
or net worth exceeds 10% of consolidated income or net worth respectively;
 At least one Independent Director on the Board of listed entity to be the
director of unlisted material subsidiary, whether incorporated in India or not;
 Shareholder’s approval by special resolution shall be required if the total
remuneration paid to a Single executive promoter director exceeds Rs.5 Crore or
2.5 % of net profit, whichever is higher or all executive promoter director exceeds
5% of the net profits;
 Shareholder’s approval by special resolution required every year, in which
the annual remuneration to a single non-executive director exceeds 50 % of the total
remuneration payable to all non-executive directors;
Accounting and Audit related matters

 Disclosure of Consolidated Financial Results mandatory for all the listed

entities on quarterly basis;
 A Disclosure of Cash Flow Statement on half-yearly basis mandatory for all
listed entities;
 Limited Review/ Audit of at least 80% of financial information of the
group i.e. consolidated revenue, assets and profits;
 Financial results in respect of last quarter could be audited/ limited
reviewed;
 Disclosure to be made by way of note with respect to aggregate effect of
material adjustments made in the results of last quarter pertaining to earlier periods;
 Mandatory disclosures of quantification of audit qualifications except the
matters which are of going concern or sub-judice matters;
 Statutory auditor of listed entity to undertake a limited review of the financial
results of all the entities/ companies whose accounts are consolidated with listed
entities;
 Disclosure shall be made with relation to the basis of recommendation for
appointment of an auditor, Total fees paid to the Statutory Auditor and reasons
for resignation of an auditor/ audit firm;
Disclosures and Transparency

 Disclose the list of all credit ratings obtained along with any revisions in

corporate governance section of its annual report;
 Disclose the certain key financial ratios in the Section of Management,
Discussion & Analysis in the Annual Report and detailed explanations shall be
provided if there is any change of 25% or more in any Financial Year;
 A Certificate from a Company Secretary in practice shall be required in the
Annual Report that none of the Directors on the board of the company are
debarred or disqualified from being appointed or continuing as directors of
companies by any authority;
 Disclosures on the entity’s website shall be in user friendly searchable
format and disclosure to the Stock Exchanges shall be in XBRL (Extensible Business
Reporting Language) Format.
Investor Participation

 Top 100 listed entities shall hold the Annual General Meeting (AGM) by

August 31, 2019 i.e. within five months from the end of the Financial Year 2018-19;
 Top 100 listed entities shall have one-way live webcast of the proceedings
of the Annual General Meeting (AGM) which shall be applicable from April 01, 2019;
 The Board of Directors shall provide their recommendations for any
resolutions before placing to the Shareholders;
Thus, the approved changes to corporate governance norms are aimed towards
aligning corporate governance standards to global best practices. Most of the approved
recommendations are firmly rooted in local business realities, where most listed entities
are promoter-led as opposed to being professionally managed, thus increasing risks of
promoter-raj at the cost of minority shareholders. To conclude, while there may exist
certain issues and glitches, such as the fact that various recommendations of the Kotak
Committee which have been approved have been made applicable to top companies in
terms of market capitalization, precluding smaller listed entities from such compliance
requirements even though it is usually some of the smaller listed entities wherein
corporate governance standards are found to be wanting, the approved
recommendations are indeed welcome and are expected to extol corporate India to a
leadership position with regards to corporate governance