The Uday Kotak panel on corporate governance has sought more active role and greater autonomy for independent directors and more transparency in their appointment and separation. The committee led by Kotak Mahindra Bank MD Uday Kotak, constituted to advise on issues relating to corporate governance among Indian firms, submitted its recommendations to SEBI on Thursday.
The 21-member panel committee set up by the Indian capital market regulator SEBI has proposed that at least half of the board of a listed entity be constituted of independent directors. The panel has also recommended having a minimum of six independent directors on the board of every listed entity, with at least one woman independent director.
On promoting the transparency with regard to the functioning of the independent directors, the report submitted by the panel suggested that the companies must list the competencies of every director present on the board. The listed firms should also disclose the detailed reasons for the resignation of the independent directors, and at the same time these firms not be allowed to appoint a person as an alternate director in the place of any of the independent directors.
As far as assigning duties and key roles to the independent directors, the committee has suggested that a formal induction should be mandatory for a new independent director, and at least once in five years for the existing independent directors.
On the compliance and regulations front, the committee has proposed that board of directors be updated on regulatory and compliance changes at least once in a year. Further, it has sought frequent interaction between NEDs (non-executive directors) and senior management, at least once a year. The report added that it’s the right time to split the Chairman and MD-CEO roles of the listed firms.
The panel has also given the recommendation on the risk management and evaluation of listed firm, proposing that the minimum number of Audit Committee meetings be increased to five every year. The Audit Committee must review the use of loans, advances and investment by holding company if it exceeds Rs 100 crore, the report said.
The committee added that succession planning and risk management must be discussed at least once a year. The panel also took a step to safeguard the interest of independent directors, proposing that the top 500 companies by market capitalisation must undertake D&O (Directors and Officers) Insurance for its independent directors.
Earlier in June 2017, the Securities and Exchange Board of India (SEBI) had set up a committee under the chairmanship of Uday Kotak to advise it on issues relating to corporate governance in Indian companies. The 21-member panel includes representatives from other companies, stock exchanges, professional bodies, investor groups, law firms, academicians, research professionals and SEBI officials.