While examining its key proposals, discuss the possible implications of proposed corporate governance code framework on Indian corporate.
In order to improve corporate governance in listed companies, committee under Uday Kotak was formed. It submitted its report to the SEBI, suggesting a host of changes for bringing in transparency at companies’ boards
- Position of Chairman and MD/CEO to be split. This will impact a large number of Indian companies like ADANI, ONGC etc. It will provide a better and more balanced governance structure and effective supervision of the management.
- Women Director: Having at least one woman Independent director in the board will bring greater gender diversity to already existing requirement of one woman director. Indian companies are still struggling to meet this norm of one woman director. Currently 38.1% of companies do not have single women director.
- Board of Directors: Recommendations like increasing number of directors from 3 to 6 will help accommodate people from diverse background and skill set. Currently 15.4 % of listed companies have less than 5 directors on their board. A director in a listed company can be a director on the board of only 7 other companies
- Auditing: The audit committee of any parent or holding company that has invested or lent Rs 100 crore or more to a subsidiary will be responsible to review the use of those funds by the subsidiary. This is to ensure more transparency on the use of funds and to keep an eye on any round-tripping of funds
- SEBI will have the right to pull up auditors for any lapses in corporate governance norms and penalise them for the same. This will ensure diligent auditing of company processes and funds.
- Other recommendations like companies should disclose their medium to long term strategy in annual report, Public sector companies to be governed by listing regulation and not nodal ministries.
Implementation of this report will require fundamental changes on multiple fronts. Companies will now have to engage more proactively, as well as closely with their independent directors.
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