Sebi makes whistle blower policy must for companies

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Corporate governance norms get tough

Sebi makes whistle blower policy must for companies
In a step towards making publicly listed companies more transparent and strengthen their corporate governance framework, the Securities and Exchange Board of India (Sebi) has made whistle blower policy compulsory and expanded the role of audit committee in related party transactions.

The Sebi board on Thursday approved the alignment of listing agreement with the provisions of the newly enacted Companies Act 2013. The amendment would be effective from October 31.

A committee led by industrialist Adi Godrej, set up by the corporate affairs ministry in March 2012, made the proposals on stronger corporate governance. At a meeting in New Delhi, the Sebi board approved most of the critical proposals that were made by the Godrej committee.

Under the new rules, the companies will not be allowed to provide stock options to independent directors. However, there will be performance evaluation of independent directors and the board of directors besides there will be enhanced disclosure of remuneration policies. Sebi has also permitted independent directors to hold separate meetings apart from the board meetings. There would also be a constitution of stakeholders relationship committee.

The new rules will require all listed firms to have at least one-woman independent director on the board, while the tenure for all independent directors will be restricted to two five-year terms in a company. Also, no individual can serve more than seven listed firms as an independent director, Sebi said. The new rules will be imposed on companies by amending the existing equity listing agreement norms.

The board also approved the proposal to put in place policies on dealing with related party transactions, divestment of material subsidiaries, disclosure of letter of appointment of independent directors and the letter of resignation of all directors.

Even risk management, providing training to independent directors, e-voting facility by top 500 companies by market capitalisation for all shareholder resolutions and boards of companies to satisfy themselves, that plans are in place for orderly succession for appointments to the board and senior management.

According to a latest KPMG-Assocham report on Companies Act 2013, specific but inclusive duties of directors have been laid down and any contravention would attract punishment, including compensatory fine. “Apart from specific enunciation of good practices and concepts, this would result in an easier prosecution of delinquent directors,” the report said.

The independent director should also declare to the board that he is independent at the time of his appointment with no relation with the company, its subsidiary and the promoters. He must also inform whenever there is any change that may impact his independence.

The tenure of independent directors has also been limited to add fresh talent on the board. The tenure would now be for a maximum of two consecutive tenures of five years with a cooling-off period of three years thereafter. “During the cooling-off period, the person cannot be inducted in the company in any capacity either directly or indirectly. Limited tenure will also ensure fresh talent on the boards, and reduce the proximity of independent directors with the management,” Sai Venkateshwaran, head of accounting advisory at KPMG India had told FC recently.

Till recently, independent directors were not held responsible for crime and perjury taking place during their tenure, as the role was ill defined and their participation in boardroom meetings were mere formalities.

According to legal experts, the newly enacted Companies Act 2013 had demarcated their role without any ambiguity.

“They are now required to raise questions to the effect if they are aware of discrepancies instead of being silent spectators to prove their disengagement,” Nilanjana Singh, partner of Mumbai-based law firm AZB & Partners, had told FC.

According to Shailesh Haribhakti, co-founder and managing partner of Haribhakti & Co Chartered Accountants, and an independent director on several boards, the independent director cannot claim ignorance even if he/she may have been absent during a particular meeting, but present in subsequent meetings where the pertinent issues were discussed. “It would be his responsibility to summarise and document the briefs and prepare the minutes to avoid problems later,” Haribhakti told FC recently.

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