Promoter-chairmen are bound to resist Sebi’s Kotak committee proposals

Corporate governance continues to be a burning issue at several listed companies with substantial retail investors’ participation. In the recent past, we have seen soap operas play out at the Tata Group, Infosys and Raymond. The Uday Kotak-led panel set up by Securities Exchange Board of India (Sebi) has rightly proposed norms that in many ways are sweeping and could be game changing. Given the 177-page report on corporate governance compiled by the Kotak panel, both Sebi and the ministry of corporate affairs led by Arun Jaitley will have to take a final call. The most significant of the changes is to segregate the powers and responsibilities of chairman, managing director & CEO to ensure complete transparency in functioning of the top 100 companies by market capitalisation. Bringing the chairman on par with a non-executive director in India with hardly any executive powers will deal a body blow to top corporate honchos who virtually run companies on their whims and fancies. It particularly applies to firms where chairmen, who generally are patriarch-promoters, hardly have any connect with the present crop of CEOs & managing directors. Just imagine the all-powerful Reliance Industries Ltd chairman Mukesh Ambani being reduced to a non-executive director or Kumar Mangalam Birla being pushed aside with virtually no powers as a non-executive director. Why, Uday Kotak himself will have to vacate space for his CEOs and managing directors to take all key calls. Kotak may have put together the proposals after having examined the best practices prevalent globally, especially in top companies of US, Germany or France where the board of directors are all-powerful, unlike the promoter directors in India. Though it is ideal to bestow all powers with the boards, there’s bound to be resistance, especially from promoter-chairmen who are also the CEO & managing directors in several listed companies. Also, having at least six directors on the board with 50 per cent seats set aside for independent directors, one of whom would be a woman, is another big proposal. In essence, this move will not only hasten a substantive increase in representation of women on companies’ boards, but also make independent directors directly responsible to the shareholders. Stringent norms proposed for ‘material subsidiaries’ and disclosures to be made by large groups are definitely path breaking, but there may not be many takers for such sweeping changes. After the simplification brought in through Companies Act of 2013, replacing the 1956 act, the Kotak panel recommendations will usher in a second wave of corporate reforms. While empowering professional directors and boards is the bedrock of Kotak’s reforms, there may still be unavoidable boardroom tussles like the ones witnessed in Infosys and the Tata group. At the same time, professionals on the board will have to take promoters along, given that essentially, the companies were founded, nourished and embellished by the latter in the first place.