SEBI’s Corporate Governance Committee Proposes, Government Opposes

Why the government is not in favour of many proposals by SEBI’s corporate governance committee.

Job seekers fill out paperwork (Photographer: Scott Eells/Bloomberg)
Job seekers fill out paperwork (Photographer: Scott Eells/Bloomberg)

The tables have turned in India. Typically governments strengthen regulations and industry frets over paperwork. But this time a 23-member committee on corporate governance, led by top banker Uday Kotak and comprising business leaders, lawyers, chartered accountants and private sector professionals, has proposed several changes to the governance provisions for public, listed companies. And the government has opposed them.

On Thursday, Securities and Exchange Board of India published the committee’s report that recommends several new corporate governance provisions such as bigger boards, 50 percent of directors to be independent, at least one female independent director and more. Many of which have not found favour with the corporate affairs and finance ministries.

In a letter to the committee the corporate affairs ministry has raised two principal objections -

  • SEBI is intruding on matters that have been core company law principles and it is seeking to extend its jurisdiction over unlisted companies.
  • Many changes have already been proposed in the pending amendment to company law and multiple jurisdictions should be avoided to ensure ease of doing business.

In more specific comments the corporate affairs ministry has objected to several proposals. For instance...

Proposal: Minimum six directors on a board.
Ministry: This will be an additional cost to the company. Before prescribing any such limits a study of the top companies may be conducted.

Proposal: At least one independent woman director.
Ministry: The woman director may not be restricted to independent director only. The issue can be addressed if a provision is made whereby there may be one woman director who is not a relative.

Proposal: Minimum compensation/sitting fees for independent directors ranging from Rs 10,000 to Rs 50,000 per meeting.
Ministry: There is no need to fix the lower limit of compensation...

Proposal: Appointment of an alternate director for independent director should not be permitted.
Ministry: The requirement of alternate director cannot be done away as it would conflict with existing provisions of the Companies Act, 2013

Proposal: New obligations on the board of the listed entity with respect to subsidiaries.
Ministry: This would amount to an encroachment into the unlisted space which is regulated by the MCA.

The finance ministry’s letter is more circumspect and while it offers no principal objection to the committee report, it too has objected to specific proposals. Far fewer though than the objections made by the corporate affairs ministry.

Proposal: Appointment of an alternate director for independent director should not be permitted.
Ministry: Will create practical difficulties...

Proposal: Disclose GDR holders who hold more than 1 percent shareholding
Ministry: Issue already being deliberated upon by ministry and SEBI.

Proposal: Capacity building in SEBI
Ministry: Not the mandate of SEBI

Curiously neither ministry has commented on what may become the most controversial proposal of this committee - that 50 percent of directors must be independent.