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Increasing the role and relevance of ‘Proxy Advisory Firms’ in corporate governance

Until very recently, the recommendations of proxy advisory firms did not impact companies much, as it did not have the power to influence or fail/ stop a resolution from being passed. However now, the recommendations of proxy advisory firms are becoming increasingly relevant given that many institutional investors are basing their positions while voting on resolutions on such advice. This is evidenced from the fact that a proxy advisory firms have recently managed to prevent a resolution for granting employee stock options to employees of a group entity of a very large Indian bank from being passed due to the absence of “any compelling reasons”.[1] In another interesting case, a proxy advisory firm came very close to preventing a resolution pertaining to an increase in the remuneration of a director from being passed on account of this increase being “skewed” and “guaranteed”.[2]

Continue Reading Impact of Proxy Advisory Firms: Turning tides and failing resolutions

Coronavirus - COVID19- Faqs

 

The World Health Organisation (WHO) declared COVID-19 as a “pandemic” on March 11, 2020.

The outbreak and the rapid spread of COVID-19 has sent shock waves across global markets. It has disrupted supply chains, leading to the closure of several manufacturing facilities globally; serious disruption of air and sea traffic and closure of vital air routes, like the one between the US and Europe. This is turn has led to the collapse of stock markets around the world, leading to the loss of billions of dollars, which got wiped out in a matter of days. A combination of all these factors has led to a decline in the overall volume of global economic activity, forcing the world economy towards a possible recession. It is forcing Boards across the globe to confront a host of difficult questions on how business should be conducted during a global public health crisis. Continue Reading COVID-19 : OFFICIALLY A PANDEMIC

CHAIRMAN OR MANAGING DIRECTOR SEBI Regulation

Section 203(1) of the Companies Act states that an individual shall not be appointed or reappointed as the chairperson, of the company as well as the managing director (MD) or the chief executive officer (CEO) at the same time, unless the articles of the company provides otherwise or the company does not carry on multiple businesses. Further, this restriction is not applicable to certain specified class of companies engaged in multiple businesses and which have appointed one or more CEOs for each such business. Continue Reading Chairman or Managing Director? – Eenie Meenie Miney Mo

Decriminalising Companies Act Offences

Via the Companies (Amendment) Act, 2019, recommendations of the Committee to Review Offences under the Companies Act, 2013 (Committee) to re-categorise 16 out of 81 compoundable offences under the Companies Act, 2013 (Act) as civil liabilities were accepted. In a move to further relax the provisions, the Government has constituted a Company Law Committee to review aspects of criminalization in the remaining compoundable and non-compoundable offences under the Act.[1] Continue Reading Decriminalising Companies Act Offences – Striking a Balance Between Ease of Doing Business and Corporate Governance

April 2019 – Dawn of a New Era in Indian Corporate Governance?

2018 was an eventful year for the corporate governance regulatory framework in India. The Securities and Exchange Board of India (SEBI) not only approved a host of recommendations made by the Kotak Committee on Corporate Governance (Kotak Committee), but also gave these recommendations the required regulatory impetus by notifying the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018.

Come April 1, 2019, a slew of these amendments (Amendments) will come into effect and all listed entities will be required to ensure their readiness in terms of implementation and compliance. Broadly, the Amendments have four intended targets: the board of directors, the listed company, the investors and the promoters.

Continue Reading April 2019 – Dawn of a New Era in Indian Corporate Governance?

The ‘Raja’ & the ‘Praja’ Changing Dynamics in Corporate India

* This piece was first published in the The Economic Times Family Business Forum

Corporate governance has become extremely topical for India Inc. over the last year or so. A few prominent governance and leadership battles contributed to our securities market regulator, SEBI, to convene a senior committee to examine this thorny issue. Interestingly, ‘good’ governance in the Indian context is not a new concept: India had ancient guiding scriptures such as the Arthashastra and the Manusmriti, propounding that the “Raja” (i.e. the King) and his ministers must follow a strict code of discipline which furthers the best interests of their “Praja” (i.e. the subjects). Perhaps history needs to repeat itself.

Today’s competitive and dynamic business environment requires a balanced blend of a sustainable growth model coupled with sound governance. Since the global financial crisis of 2007-2008, Corporate India has accepted this as the “new normal” to survive this period of transition. However, practical reality is far from ideal.

To help fix these governance issues, the Kotak Committee Report on Corporate Governance, released on October 5th, 2017, formed under the chairmanship of Mr. Uday Kotak (“Report”), proposed a slew of far reaching changes, whose impact will be far reaching in the Indian promoter context. This article examines a few changes.

Continue Reading The ‘Raja’ & the ‘Praja’: Changing Dynamics in Corporate India

Diwali Gifts Are You Wrapping Up a Bribe

Diwali is one of the most anticipated and celebrated festivals in India. It is also a festival of giving gifts, which is often a challenge for compliance professionals who struggle with policies and nuances of law around this time, on giving gifts that might seem like bribes.

Under the Prevention of Corruption Act, 1988 (PCA), the principal anti-bribery and anti-corruption statute in India, giving and receiving any form of pecuniary gratification may imply criminal penalties for both the bribe-giver and the public official. Furthermore, according to the conduct rules of various government departments, government servants are obliged to report receipt of gifts that go beyond prescribed monetary limits..

Gifting per se is not an illegal activity under Indian law. Under the PCA, the determining factor that separates a gift from a bribe is whether the gift was made with an expectation of quid pro quo. Furthermore, it must be clarified that the various conduct rules do not prescribe a de minimis or a minimum monetary threshold up to which a gift is seen as unquestionable. The conduct rules (as may be applicable to different public officials) merely provision for reporting obligations on behalf of the government servant, in cases where the pecuniary value of the gift received exceeds a certain limit.

Continue Reading Diwali Gifts: Are You Wrapping Up a Bribe?

It seems we live in an independent director-bashing era. News articles, blogs, scholarly write-ups are replete with criticism relating to independent directors, whether it’s to do with their appointment, ‘true’ independence, removal, resignation or generally their very existence! Anything remotely connected to what such directors do is presented as wrong. From a legal stand point, however, the law of director’s liability and fiduciary duties applies equally to independent directors. Such directors do not have any meaningful defence available to them by the mere taxonomy of the position held by them. Why then is the sentiment so negative?

Critics argue that the key issue emanates from the method of appointment of such directors because they feel that the people chosen are typically those that are close to promoters and can influence decision making. But practically, a total stranger on board could be the worst choice even for truly independent decision making.

Continue Reading Need for New Voting Regime to Achieve True Independence

This piece was previously published in the Economic Times

Next on the list of dilemmas relating to corporate governance issues for independent directors (ID) of a listed company is Board Evaluations. These are 360-degree reviews of the performance of a board of directors, conducted by the Nomination and Remuneration Committee (NRC). In a formal board evaluation process, each director reviews the other.

Interestingly, based on such evaluation, the NRC has to determine (amongst other things) whether an ID should continue holding his directorship or not. Earlier on, such evaluations were voluntary and some companies have been making generic voluntary disclosures in the annual report stating that the evaluation was conducted and recommendations were absorbed for improvement of board functioning. Going forward, the content of this disclosure will change.

Continue Reading Board Evaluations a Nightmare for Independent Directors?

One of the key tenets of effective corporate governance is the ability of a corporation to promote transparency. Transparency and accountability is strengthened not just by efficient management and robust disclosure policies, but also by the creation of systems and processes to detect and address internal instances of fraud and corruption.

Whistleblowing has always played a distinct role in making companies alert to, and mindful of, employee conduct as well as internal processes and procedures. The existence of this class of facilitators is well recognised in the Indian legislative framework. Under section 177(9) of the Companies Act, 2013, it is mandatory for every listed company to establish a vigilant mechanism for directors and employees. Furthermore, the revised clause 49 of the listing agreement mandates that the company must establish a whistleblower mechanism with adequate safeguards against victimisation of whistleblowers.

Whilst immensely beneficial, tipping off/whistleblowing comes with its own set of unique challenges for the company, the alleged wrongdoer as well as whistleblowers themselves. While there is no ‘one size fits all’, certain aspects, as detailed below, should be considered by any company seeking to establish a whistleblower mechanism: Continue Reading Who Can Hear The Whistle Blow? Whistleblowing And Its Impact On Corporate Governance In India