Final recommendations issued to SEBI on corporate governance improvements for Indian corporates

In October 2017, the Committee on Corporate Governance established by the Securities and Exchange Board of India (SEBI) issued its final report to SEBI on corporate governance improvements for Indian corporates. In its recommendations, the Committee has had to reflect a combination of corporate governance “best practice” with the particularities of the Indian corporate world. Unlike in Western Europe and the US, Indian companies, like most Asian economies, continue to be dominated by controlling promoter interests, with it being common to have only a minority of a company’s shares held outside the promoter group.

If adopted by SEBI, a number of corporate governance standards will be introduced which are designed to lessen the extent of promoter control, increase the responsibility of boards and improve the oversight and governance of Indian listed companies, including:

• Boards to comprise a minimum of 6 directors with the independent directors to form a majority of the board.
• An increase in the number of board meetings required to be held each year to 5.
• Mandatory annual meetings between non-executive directors and senior management.
• Separation of the roles of chairperson and CEO.
• Appointment of a lead independent director if the chairperson is not independent.
• Directors to hold no more than 7 listed-company directorships.

In addition, the Committee has recommended more transparency on the relationships between listed companies and their promoters, including information flows to the promoter as well as measures to improve the availability and access to information which is publicly disclosed.

If adopted and implemented by SEBI, these recommendations will have a significant effect on Indian listed companies and their relationships with their promoter groups.