With the intention of improving the corporate governance standards in the country, corporate watchdog SEBI will be seeking comments from the public after the Kotak panel comes up with its report. The report will also feature recommendations on ensuring independence in the functioning of independent directors and their active participation in the company; which becomes all the more essential, in the backdrop of the boardroom battles that recently played out at Infosys and the Tata group of companies.
Headed by Uday Kotak (executive vice chairman and managing director of Kotak Mahindra Bank), the Kotak committee is working on five key themes, namely the autonomy of ‘independent directors’, the role of promoters in companies, the performance evaluation of directors, the role of auditors, and the degree of transparency and financial disclosures; and is expected to turn in its report by September end.
The panel was set up by SEBI on June 2 this year, to advise it on issues pertaining to corporate governance. It consists of a total of 21 members, which includes representatives from law firms, stock exchanges, companies, academicians, professional bodies, investor groups, research professionals and SEBI officials too.
The recommendations of the panel have gained relevance and urgency, in the aftermath of the entire upheaval at Infosys. Questions have been raised on the disproportionate influence wielded by specific shareholders (something that happened in both, the Infosys and Tata-Mistry cases), in the final decision, and how it can impact the rights of minority shareholders too. The Kotak panel will therefore, be well served to take such instances in account when it brainstorms on the aspects of promoter role and directors’ independence in companies.
The panel is also discussing a proposal which suggests the splitting the CMD (chairman and managing director) post into two separate posts, for better business practices. Public sector units may be the first to implement this move, according to media reports.
SEBI chairman Ajay Tyagi, who was named among the world’s top 10 regulators (ranked at the seventh position on the list), recently said: “There are too many lacunae with respect to the concept of independent directors with many having no commitment to any cause. Some independent directors are appointed at the mercy of promoters“(with) no prescribed qualifications or procedures, favouritism, (many are from) closed clubs (such as) only those people being in all boards, no commitment to any cause.”
There is also a clear concern of a large number of fraudulent companies and ‘directors’ existing in the business ecosystem. The Ministry of Corporate Affairs (MCA) recently delisted over 2 lakh companies, and revealed the names of 55,000 directors who are suspected to be associated with ‘shell’ companies; non-compliant companies which are deemed to exist only on paper and are often used as vehicles for money laundering or for round-tripping of funds.