Business Economics

3. Corporate governance standards for publicly traded companies. Critical evaluation of the proposal

SEBI which is the market regulator has come out with set of proposals on January 4, 2013 with a view to boost corporate governance standards. The current listing agreement under Clause 49 which was introduced in 2006 has not since been reviewed inspite of the infamous Satyam scam and with the Companies Act passed by Lok Sabha recently, there is a need to seriously align the disclosure requirement under Clause 49 with to be implemented new Companies Bill and also to improve the standards of corporate governance.

The some of the critical changes proposed are:

I. minority shareholder participation in the election of independent directors,

II. Independent director should not have any material pecuniary relationship with Key managerial personnel and he also should not be a material or service provider or customer, lessee or lessor to the company which may affect his independence

III. Declaration of independence by Independent directors

IV. The companies and Independent Directors should have a code of conduct in line with the Schedule IV of the proposed Companies Bill

V. Prohibition of grant of stock options to Independent Directors

VI. Separation of office of Chairman and Chief Executive Officer (equivalent to MD)

VII. Enhancement of role and function of Audit Committee

VIII. Whistle Blower policy to be instituted in the Companies

IX. Detailed treatment of related party transactions, and the like.

X. Implementation of policy of successive planning

The proposals are radical and choose to provide greater power to minority shareholders in relation to existing norms. These proposals if accepted will go a long way to change the manner in which the companies are governed. It definitely gives greater power to minority shareholders and the role of independent directors have been enlarged and it provides that and independent director will be appointed as Lead...