Mumbai, Feb. 13: The country’s market regulator today struck a decisive blow for gender rights when it decided that all listed companies in the country would have to appoint at least one woman director to their board of directors.
At a board meeting held in the capital today, the Securities and Exchange Board of India (Sebi) today adopted several measures designed to improve corporate governance standards in listed companies.
The new norms will come into effect from October 1.
The board redefined the concept of an independent director by excluding nominee directors of the government or state-owned financial institutions from the ambit.
It barred the issue of stock options to independent directors and capped the number of boards on which an independent director could serve to seven against 15 earlier. If a director is serving as a whole-time director in a listed company, he can only be an independent director in three companies.
The Sebi board also wanted greater transparency in the remuneration paid to top-level executives, performance evaluation of independent directors and the board of directors but did not spell out the specifics.
It said companies would have to now bring about a whistle-blower mechanism to protect the interests of the minority shareholders.
Sebi also restricted the total tenure of an independent director to two terms of five years. However, it clarified that if a person who has already served as an independent director for five years or more in a listed company as on the date on which the amendment to listing agreement becomes effective, he shall be eligible for appointment for one more term of five years only.
Sebi chairman U.K. Sinha told reporters after the board meeting that the market regulator would amend the listing agreement with respect to these corporate governance norms for listed companies. The amendments propose to align the provisions of the listing agreement with the provisions of the newly enacted Companies Act, 2013.
Capital market circles said the measures proposed by Sebi with regard to independent directors had largely been made with the objective to make them “truly independent”.
It may be recalled that the market regulator had placed a discussion paper, where it proposed various changes in corporate governance norms for listed firms. Most of the amendments have now been approved. The discussion paper pointed out that on an average, the remuneration paid to CEOs in certain Indian companies is far higher than the remuneration received by their foreign counterparts for which there was no justification.
The Sebi board also clamped down on related party transactions (RPTs) with entities linked to promoters and directors. The board meeting ruled that prior approval of the company’s audit committee was necessary for all “material” RPTs.
Further, such RPTs that have a material impact on the company will have to be approved by shareholders through special resolution with the related parties abstaining from voting.