“It is felt that giving any shareholder preferential treatment compared to other shareholders for getting access to information would have far-reaching implications and therefore may not be desirable. The recommendation may not be considered,” Sebi
has said in the board memorandum.
The Kotak panel
had proposed adoption of a transparent framework for sharing of information with a company's promoters and significant shareholders, to “reduce subjectivity and provide clarity for ease of business”. The panel had said this could be done with appropriate checks and balances, to prevent any abuse and unlawful exchange of UPSI.
The issue of information sharing with promoters had assumed significance during the tussle at Tata Sons between erstwhile chairmen Ratan Tata and Cyrus Mistry, and the feud between Infosys' founders and the management.
feels adopting a framework that gives preferential treatment to dominant shareholders could be prone to misuse and the existing practice would be better.
At present, information sharing with promoters is allowed only on a 'need to know' basis. In other words, sensitive information may be shared with entities which not part of the board but only if their inputs are critical for decision making. Currently, the flow of information with promoters “occurs in the shadows, in the absence of a green channel”, the Kotak panel
had told Sebi, recommending a more formal framework. The memorandum document put out by Sebi
on its website highlights the market feedback on the proposal. Those against the proposal say significant shareholders should not be treated differently from all others and not get a special privilege. “The recommendation will create information asymmetry...it (would be) difficult to monitor the flow of information and could do away with the equality between shareholders,” was one such reaction.
Another comment went: “Sebi’s Prohibition of Insider Trading (PIT) rules are sufficient...price-sensitive information in a company should not be allowed to be moved outside, unless it is on a need to know basis, which is already permitted in the law.”
Some argue this issue is not confined to sharing of information. “The company board should decide the information a promoter can have, the manner of access and the extent to which promoters can give directions. It should in no way reduce the responsibilities of the board. This cannot be adhered to in a prescribed form of agreement,” was a comment received by an entity in favour of the proposal, with modifications.
The panel had recommended that an entity would qualify to access material information if its holds at least 25 per cent stake. Some in favour of the recommendation, with tweaks, suggested the threshold be brought down to 20 per cent.
has also rejected other recommendations such as raising the minimum board meet and independent director count, and on providing minimum compensation to independent directors.
Of the 80 recommendations made by the Kotak panel, 40 were accepted without modification, 15 with modifications, 11 were rejected and eight referred to the government and other departments.
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