Uday Kotak Panel, established by SEBI, recently released its recommendations focussing on issues with corporate governance. (Click here to know more on the panel recommendations)
The recommendations need a review for it to be effective in implementation.
What are the limitations and challenges?
Spirit - The success of any law on corporate governance largely depends on the intent and spirit than the letter of law.
E.g. Both the Companies Act, 2013 and the SEBI regulations require a company to have at least one woman director on its board.
But in reality, the woman director appointed is generally a relative or a family member of the promoter. (recent recommendation - appointment of "independent” woman director)
Evidently, while the letter of law may have been complied with, the spirit of regulations has not been met.
Ease of doing business - For any regulation aimed to enhance corporate governance, it is equally important that it should not result in difficulties in doing business.
Ensuring this is essential for developing a true spirit for compliance instead of a forced one.
Roles - Listed entities with more than 40% public shareholding should now separate the roles of a chairperson and MD/CEO.
Making shareholding the only criteria for separation of roles may not be correct, and this should have been left to be decided on a case-by-case basis.
Certainly, a profitable company would prefer sustaining the growth momentum by avoiding dual centres of power and retaining a single control.
Efficacy - Some of the recommendations, including increasing the minimum of directors from 3 to 6, could be harder for the companies to implement.
Six being an even number, voting on a resolution and a deadlock, if any, requires a casting vote; this could lead to operational unease.
Also, the proposal for separate roles of chairperson and managing director could affect family-promoted companies.
On the other hand, some easy to implement recommendations such as on meetings frequency, directors' attendance, liability insurance, etc, certainly may not have a big impact on corporate governance.
What lies ahead?
A mere change in regulations or enhancing the punishment for violation would only yield little result.
Thus, change in the attitude is a more important precondition for the success of any norm on corporate governance.
India has significantly improved its ranking on protection of minority shareholders in the recent Ease of Doing Business index.
It is now for SEBI to take forward this and modify the existing norms, make changes and implement the recommendations.
