New Delhi, Sept 4: The department of company affairs (DCA) is coming up with a set of guidelines for the appointment of relatives of directors and promoters of companies.
The department had been contemplating for some time to set such guidelines so that promoters and directors do not appoint relatives at fancy salaries who contribute little to the output of the company, to the detriment of the shareholders.
A senior official of the department said the guidelines stipulates the formation of a selection committee in the company for the purpose of examining such appointments. The guidelines would try to ensure that there is transparency pertaining to such appointments and the committee includes independent members in it.
The appointment for which these guidelines are going to be issued are non-board employees. Apart from higher level executive appointments, middle and lower level executives will also be governed by the provisions of the guidelines. A notification of the guidelines will be made soon.
To maintain transparency in such appointments, disclosures pertaining to relations of the selected persons to the promoters, and or directors have to be published in at least two newspapers.
The appointment of such relatives need to be made in the same manner as any other appointment in that category, meaning thereby that the channel of appointment would be the same for all—related or not.
These appointments also need to have the approval of the shareholders at the annual general meeting (AGM). “The basic idea is that the shareholders should know about the nature of such appointments and they should know that their remunerations are justified or not,” the official said. The move is seen as one more step towards ethical corporate governance.
Meanwhile, the J.R. Verma committee on corporate governance, set up by the government held its meeting in Mumbai today.
The DCA, like the Securities and Exchange Board of India (Sebi) is of the view that corporate governance should be voluntary and based on principles.
According to the official the Shardul Shroff committee that has been formed by the government to review the penalty provisions in the Companies Act, will submit its report soon.
The DCA has been maintaining that the penalty provisions in the Companies Act were too little to act as deterrents.