Corporate governance is a field where you have to move forward through evolution rather than revolution. The committee has made a number of recommendations that relate to independent directors and board engagement, among others. These will help to make corporate governance more equitable for minority shareholders, as well as create long-term value creation for all shareholders.
How much of a step-up in terms of compliance will these recommendations entail?
I don’t think the requirements are onerous. Of course, there are requirements for the board to meet five times a year, with at least on one occasion the focus should be on long-term value creation. The committees (on the board) should have adequate number of independent directors. To get in line with the recommendations a time frame has been laid out going forward, so that the ones that are easy to do are done quickly, while the ones that take longer could take some time.
When it comes to public sector enterprises, the general feeling is that no one wants to acknowledge the elephant in the room — the government — which calls the shots when it comes to appointments.
The terms of reference of the committee were to look at corporate governance in listed entities. The committee has recommended that all listed entities should follow the same norms (irrespective of ownership).
How has the equation changed for the promoters?
In a way we have defined that promoters with access to certain information should be treated as insiders with regard to use of that information.
What will be the implication of this?
There will be a legitimate way defined promoters would get access to information. It will regularise a situation where such information was available to unauthorised hands through unauthorised ways. So there has to be a clear way to get such information, and use it in a way that is not detrimental for minority shareholders.
Why did the committee feel the need for appointment of lead independent director – someone who speaks on behalf of all the independent directors?
Many steps have to be taken to allow independent directors to operate with independence. One of the best practices that have been adopted in many countries is to have a lead independent director. This will help independent directors to build a consensus and share that with the entire board.
So, will this enhance the voice of independent directors on the board?
It definitely will do so.