listed companies now will have to follow a stricter set of corporate governance norms, which require them to check excessive executive pay, put in place whistle-blower policies and orderly succession plans, and keep at least one woman director on their boards.
In a major overhaul of corporate governance norms for listed companies and their top executives, Sebi board on Thursday also cleared proposals requiring greater oversight of and by independent directors, greater checks on all related party transactions involving promoters and directors and limits on directorships and remuneration of board members. The new norms would come into effect for all listed companies with effect from October 1, 2014, Sebi said.
After the board meeting here on Thursday Sebi Chairman U K Sinha said that the new norms seek to align the existing Sebi regulations with the new Companies Act and would be soon incorporated into the listing agreement for implementation.
The new norms, which have been finalised after detailed consultations over draft regulations released in January 2013, also seek to exclude ‘nominee directors’ from the definition of independent directors.
Besides, these proposals include compulsory whistle blower mechanism, expanded role of audit committee, prohibition of stock options to independent directors and enhanced disclosure of remuneration policies. Separate meetings of independent directors, and constitution of ‘stakeholders relationship committee’ are also a part of the proposals.
Other new measures are performance evaluation of independent directors and board members, prior approval of audit committee for all material related party transactions followed by approval by shareholders (after excluding related parties from voting) through special resolution. Mandatory constitution of nomination and remuneration committees chaired by an independent director is also among new measures.
Also, it has been decided that the maximum number of boards an independent director can serve on listed companies be restricted to 7, while the directorship would be capped at three if the person is serving as a whole time director in any listed company.
The new norms also restrict the total tenure of an independent director to two terms of five years. If a person has already served as an independent director for five years or more in a listed company till the date new norms come into effect, he would be eligible for appointment for one more term of five years only.
The definition of related party transactions has been widened to include new elements of Companies Act. The Sebi board also approved proposals to put in place principle of corporate governance, policy on dealing with related party deals, and plans for orderly succession planning for appointments to the board and senior management positions.
The proposals also include framework for divestment of material subsidiaries, disclosure of letter of appointment of independent directors, letter of resignation of all directors, training to independent directors, risk management, and e-voting facility by top 500 firms for shareholders and directors.