No Compromise on Good Governance Norms: SEBI to India Inc

Unperturbed by intense lobbying by industry, capital markets regulator Sebi has said that listed companies must follow higher corporate governance standards and there will be no dilution to the new norms kicking in from next month.

At the same time, the regulator's doors are open if firms want to discuss any apprehensions they might have and those can be resolved in the meantime to help them adapt to the new regulations, Sebi Chairman U K Sinha said.

He made it clear however that there can be no compromise on safeguarding the interest of investors, saying that this was of paramount importance in the new corporate governance norms coming to effect from October 1.

Among others, the new regulations give more powers to minority shareholders on various issues such as related party transactions, appointment of directors and CEO salaries, while listed companies would also have to mandatorily appoint a woman director and put in place whistle-blower mechanism.

Many of these provisions are common to those provided in the new Companies Act, while Sebi has decided to keep the bar higher for listed companies in terms of corporate governance.

A consultation process was launched by Sebi for the new norms way back in January 2013 and final norms were proposed after taking into account the comments from public and various stakeholders. However, the regulator is now being criticised in some quarters for being harsher vis-a-vis listed companies.

"New companies law was enacted in October 2013, but now there is lobbying from corporate India that Sebi is working like an activist. One comment from some very responsible section was that Sebi is acting like a dragon. These things are going on and on," Sinha told PTI in an interview.

He also brushed aside the perception that harsher norms would result in companies leaving Indian markets and said that the regulations were still less stricter in India as compared to many developed countries.

"So when people say that we have become a dragon and they threaten us we will go out of India, I would like to ask them which part of the world they want to go. In fact, we are little behind of what the developed world is doing," the Sebi chief said.

"But, I must also add that there are corporates who are willingly adopting the new norms and privately many have told that what you (Sebi) are doing is right," Sinha said.

He said that Sebi follows a consultation-process for every new norms and the corporates have always been a major stakeholder in such deliberations.

"So my answer to this thing (lobbying against new norms) is that Sebi came out with a consultation paper, which was there for more than a year. Secondly, we have consulted retail investors, investors bodies, analysts and journalists, among others and we have engaged industry bodies of the corporates on more than one occasion... After that we have come out with the final norms," he said.

With regard to corporate governance norms, Sinha said the argument from the other side is that the new companies law has already got certain provisions and therefore why is Sebi becoming stricter than that.

The Sebi chief said: "Our answer to that is, we must align ourselves to the companies law. We will not be doing anything below that level.

"That is the benchmark that listed companies must follow, but listed companies must have higher standard, higher corporate governance norms, primarily because they have shareholders who are members of public and this is the practice all over. So the surprise and hesitation and reaction which I am facing, I fail to appreciate that."

According to him, the regulator came out with corporate governance norms in 2000 and eminent industry leaders like Kumar Mangalam Birla and N R Narayana Murthy have headed Sebi committees.

"So its not that Sebi has learnt the merit of corporate governance after the Companies Act... We have been doing it for a long time and in our judgement we feel, what we have done is right," Sinha noted.

The areas that bother Sebi include abuse of related party transactions and in many cases the watchdog has found such violations.

"So the message I am trying to give is that doors are not closed. We are still talking and getting representations and wherever possible in next two weeks, we will try and align things so that it is practical but safeguards the interest of small investors," Sinha said.

The Sebi said that compensation of the CEOs and key managerial persons has become an issue not only in India but other parts of the world.

Sinha said: "In 2011-14, in 6 or 7 Fortune 500 companies, the resolutions proposed by the board on the enhancing the compensation of the CEOs or enhancing his bonus has been rejected by the shareholders.

"In parts of the develop world, where if you are the chairman of the remuneration committee of the board and you have made a recommendation that recommendation is carried through a majority but not by a super majority of 75 per cent then you will have to seek re-election. So the chairman of the remuneration committee, must make a recommendation that is carried by 75 per cent or more."

Emerging story. Watch this space for updates as more details come in
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