Skip to main content

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


Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

New money laundering norms stump jewellery sector

New money laundering norms stump jewellery sector Dealers with turnover of Rs 2 crore and above covered; industry says threshold too low The central government has notified the money laundering rules for the gems and jewellery sector with immediate effect. Now, any entity deals in precious metals, precious stones, or other high-value goods and has a turnover of Rs 2 crore or more in a financial year will be covered under the Prevention of Money Laundering Act, 2002 (PMLA, 2002). The limit of Rs 2 crore would be calculated on the basis of the previous year’s turnover, said the notification. The directorate general of goods and service tax intelligence has been appointed under the Act. Sources said the government’s move to apply the PMLA to the jewellery sector was a fallout of income-tax raids on jewellers soon after demonetisation last November, when it was found that they sold gold and jewellery at a huge premium and accepted old currency notes as payment. The notification, issued on Augus…

Confusion over branded food GST

Confusion over branded food GST The GST Council's statement over the weekend on applying tax on branded food items has left most of the trade confused.

Even though the Council has not changed the rates on food -0 per cent on unbranded stuff and 5 per cent on brands -many small traders who didn't levy GST earlier said they could come under the 5 per cent slab after the clarification.

While they predicted some increase in consumer prices, large players said they can absorb GST in many ways and keep prices steady.

"Trade is confused and hence on behalf of our chamber, we have asked our members to go ahead and charge 5 per cent GST," said Sushil Sureka, general secretary of the Ahilya Chamber of Commerce and Industry in Indore.

The statement clarifying the application of GST came after some businesses were found deregistering their brands and selling under corporate brand name without paying tax, after the Council exempted unbranded food from the new all-encompassing indirec…