Corporate Governance

Subscribe to Corporate Governance via RSS
Managerial Remuneration – Should Promoters Be Disenfranchised?

Historical Context

The Government of India’s socialistic approach towards controlling managerial remuneration between 1960s and 1990s has been a painful chapter in the history of India’s company law. While the restriction applied only to those on the board of directors, the limits the then Department of Company Affairs had prescribed in its administrative guidelines under the Companies Act, 1956 in November 1969 was as low as INR 7,500 per month and further reduced to INR 5000 per month years later. Any payment beyond those limits required the Central Government’s approval, which was also a very cumbersome and time-consuming process. This led to the unhealthy practice of compensating Managing Directors and Executive Directors (“MD/EDs”) with cash reimbursements and many other inappropriate methods. Some MDs/ EDs also stepped down from the board to accept positions one level below the board. They were designated as presidents and vice presidents despite performing the role of the Managing Director.Continue Reading Managerial Remuneration – Should Promoters Be Disenfranchised?

Strategically building a workforce for Global Capability Centres (GCCs) in India

In part III of our series on key legal considerations for establishing global capability centres (“GCCs”) in India,[1] we discuss the various factors that need to be considered to engage workforce for the GCCs.Continue Reading Strategically building a workforce for Global Capability Centres (GCCs) in India

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

SEBI

Background

SEBI has been progressively tightening the regulatory regime surrounding transactions impacting listed entities – beginning with the implementation of the Kotak Committee recommendations on related party transactions (RPTs) through amendments to the LODR Regulations on May 9, 2018. Shortly thereafter, in November, 2019, SEBI constituted a Working Group (WG) to re-examine the RPT provisions of LODR Regulations, which resulted in the markets regulator notifying amendments on November 9, 2021, which took effect from April 01, 2022. These amendments brought about a paradigm shift by making the RPT approval and disclosure requirements applicable to listed companies in India very expansive and stringent.Continue Reading Proposed Amendments to LODR on Agreements Affecting Listed Companies – Swatting Flies with a Sledgehammer?

Nomination and Remuneration Committee

Background

The regulatory architecture under the Companies Act, 2013 (“Act”), and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”), envisages a key role for the Nomination and Remuneration Committee of the Board of Directors (“NRC”) – in ensuring that the company attracts and retains the best talent – and there is transparency in the process of appointment/ re-appointment and payment of remuneration to directors, key managerial personnel (“KMPs”) and senior management[1].Continue Reading Gatekeepers of Governance – Nomination and Remuneration Committee

Context

The regulatory architecture under the Companies Act, 2013 (“Act”), and the SEBI (LODR) Regulations, 2015 (“LODR”), places independent directors (“IDs”) at the forefront of India’s quest for better corporate governance. Given that approximately 75% of listed companies in India are promoter-controlled, the MCA and SEBI have envisaged that the IDs will play a key role in safeguarding minority shareholders’ interest.Continue Reading Gatekeepers of Governance – Independent Directors

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