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Sebi bats for at least 1 independent woman director on boards

Might make a recommendation to the ministry of corporate affairs

The Securities and Exchange Board of India (Sebi) is in favour of having at least one woman as independent director (ID) on the board of listed companies, said two people in the know, including a senior Sebi official.

According to the Companies Act, 2013, all listed companies need to have at least one woman as a director on their board. While most companies have fulfilled this, some have done so by inducting family members of the promoters. And, women on India Inc boards are still low in number.

“The thinking within Sebi is that there should be at least a fifth of women on the boards of listed companies in the next three years. To achieve this, the regulator plans to make a recommendation to the ministry of corporate affairs of making one independent woman director mandatory,” said a person with knowledge of the development, asking not to be named. The person said the recommendation could be made after a newly setup committee on corporate governance gave its report. The panel has had two meetings so far and, among other things, is looking at the issue of women as directors, the person added.

The 21-member panel headed by Uday Kotak, managing director of Kotak Mahindra Bank, is expected to give its report by October. Currently, 1,516 women hold a total of 2,036 board positions of the latter total of 14,186, shows data provided by Indian Boards Database. It tracks the boards of 1,633 companies listed on the National Stock Exchange. There are 1,223 positions held by women of 7,932 total IDs. Women are slightly less than 15 per cent of all board positions on India Inc.

“The idea is to bring diversity on the board. It doesn’t matter if they are independent or nominee directors, as long as they are not just a symbolic appointment. Ideally, the women director count should reflect their representation in our overall population,” says Shriram Subramanian, founder and managing director at In Govern Research, a corporate governance entity.

At an event earlier this week, Ajay Tyagi, who recently became chairman of Sebi, stressed the importance of IDs. He said as most companies in India were promoter-driven, the selection procedure for IDs needed a re-look.

At a recent meeting with chief executives of public sector undertakings (PSUs), Securities and Exchange Board of India (Sebi) Chairman Ajay Tyagi made several pertinent points about corporate governance. Mr Tyagi’s central message was that PSUs are not held to the same standards as firms in the private sector. His observation comes at a time when listed PSUs are fast approaching an August 21 deadline by when they are required to ensure public shareholding of at least 25 per cent.

However, many PSUs have failed to sell off stakes as required and it will be impossible for them to adhere to that deadline. This is in spite of them being given a generous grace period of an extra three years because the originally fixed date – set by the Department of Investment and Public Asset Management, or DIPAM, under the Ministry of Finance – was August 22, 2014. The DIPAM schedule was in line with a Sebi directive of June 2013 stipulating that all privately promoted listed companies had to have a minimum 25 per cent public shareholding.

Sebi had issued show-cause notices to some 100-odd privately promoted listed companies that had failed to adhere to the 2014 deadline. It followed this up with penalties for offenders by measures such as freezing of voting rights and restrictions on dividend payments.

The introduction of a minimum 25 per cent public shareholding norm is expected to improve corporate governance and enhance transparency. If that rationale is accepted, there is no reason why PSUs should continue to be allowed to operate as closely held entities with less transparent practices and lower governance standards. Sebi ensured that privately promoted companies diluted their promoter holdings and it would prefer to have PSUs complying with those norms as well.
However, as Mr Tyagi pointed out, taking a decision to dilute ownership in a PSU depends on clearance from the government of the day before the company can initiate action on either a strategic stake sale or a public offer. Unfortunately, however, the government has dragged its feet on the issue and it is now likely to grant closely held PSUs an extension of the August deadline.

To be sure, there are other areas where PSUs are not held to the same standards of corporate governance as private enterprises. One is in the area of gender diversity and the overall composition of boards. Listed Indian companies are required to have at least one woman board member and privately promoted companies have complied with this norm by increasing the female representation on boards. Yet, at least 20 per cent of PSUs do not have a single woman director on their boards.
He also said that there were no set rules for appointing independent directors for PSUs and often independent directors were appointed and removed arbitrarily. In addition, nominee directors are also often political appointments who are not necessarily experts in any area relevant for the companies in question.

It is heartening that the Sebi chairman has chosen to draw attention to this gap since PSUs are major players across the Indian corporate landscape and indeed have significant presence in several sectors such as mining and energy. Poor corporate governance implies that minority shareholders are short-changed. Hard deadlines should be set for compliance with these minimal standards of governance and the DIPAM should also be instructed to speed up disinvestment in closely held PSUs.

Business Standard New Delhi, 07th July 2017


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